Affiliations: KLAS, Math & Stat, Northeast Normal University and DSAP & RMI, National University of Singapore, Singapore | Department of Statistics, National University of Singapore, Singapore | Department of Economics, Hong Kong Baptist University, Hong Kong
Note: [] Address for correspondence: Wing-Keung Wong, Department of Economics, Hong Kong Baptist University, Kowloon Tong, Hong Kong. Tel.: +852 3411 7542; Fax: +852 3411 5580; E-mail: [email protected].
Abstract: This paper extends the work of Markowitz (1952), Korkie and Turtle (2002) and others by first proving that the traditional estimate for the optimal return of self-financing portfolios always over-estimates from its theoretic value. To circumvent the problem, we develop a bootstrap estimate for the optimal return of self-financing portfolios and prove that this estimate is consistent with its counterpart parameter. We further demonstrate the superiority of our proposed estimate over the traditional estimate by simulation.
Keywords: Optimal portfolio allocation, mean–variance optimization, self-financing portfolio, large random matrix, bootstrap method
