Article ID: | iaor2013915 |
Volume: | 219 |
Issue: | 10 |
Start Page Number: | 5440 |
End Page Number: | 5448 |
Publication Date: | Jan 2013 |
Journal: | Applied Mathematics and Computation |
Authors: | Bodnar Taras, Okhrin Yarema |
Keywords: | risk, optimization |
Due to estimation risk, the portfolios on the efficient frontier can be statistically indistinguishable from the global minimum variance portfolio. We provide a methodology for determining a bound on the risk aversion coefficient, which separates portfolios that are equivalent or significantly different from the global minimum variance (GMV) portfolio. We conclude that investing in the GMV portfolio is statistically justified for investors with a very wide range of the risk aversion coefficients.