Risk Reduction in Large Portfolios : Why Imposing the Wrong Constraints Helps

@inproceedings{Jagannathan2002RiskRI,
  title={Risk Reduction in Large Portfolios : Why Imposing the Wrong Constraints Helps},
  author={Ravi Jagannathan and Tongshu Ma},
  year={2002}
}
Green and Hollifield (1992) argue that the presence of a dominant factor is why we observe extreme negative weights in mean-variance-efficient portfolios constructed using sample moments. In that case imposing no-shortsale constraints should hurt whereas empirical evidence is often to the contrary. We reconcile this apparent contradiction. We explain why constraining portfolio weights to be nonnegative can reduce the risk in estimated optimal portfolios even when the constraints are wrong… CONTINUE READING
Highly Influential
This paper has highly influenced 45 other papers. REVIEW HIGHLY INFLUENTIAL CITATIONS
Highly Cited
This paper has 386 citations. REVIEW CITATIONS

Citations

Publications citing this paper.
Showing 1-10 of 255 extracted citations

386 Citations

02040'01'04'08'12'16
Citations per Year
Semantic Scholar estimates that this publication has 386 citations based on the available data.

See our FAQ for additional information.

References

Publications referenced by this paper.
Showing 1-10 of 16 references

Risk reduction in large portfolios: Why imposing the wrong constraints helps, NBER working paper 8922

  • Jagannathan, Ravi, Tongshu Ma
  • 2002

Common risk factors in the returns on stocks and bonds

  • Fama, Eugene, Kenneth French
  • Journal of Financial Economics
  • 1993

On the sensitivity of mean-variance-efficient portfolios to changes in asset means: Some analytical and computational results

  • Best, J Michael, Robert R. Grauer
  • Review of Financial Studies
  • 1991

The Markowitz optimization enigma: Is “optimized

  • sity Press, New Haven, CT. Michaud, O Richard
  • 1989

For better performance: Constrain portfolio weights

  • Frost, A Peter, James E. Savarino
  • Journal of Portfolio Management
  • 1988

Risk and return in an equilibrium APT: Applications of a new test methodology

  • Connor, Gregory, A Robert
  • Korajczyk,
  • 1988

An empirical Bayes approach to efficient portfolio selection

  • Frost, A Peter, James E. Savarino
  • Journal of Financial and Quantitative Analysis
  • 1986

Performance measurement with the arbitrage pricing theory

  • Connor, Gregory, A Robert
  • Korajczyk,
  • 1986

International portfolio diversification with estimation risk

  • Jorion, Philippe
  • 1985

Similar Papers

Loading similar papers…