A Further Comment on the Zero Row‐Sum Property of Mean‐Variance Portfolio Allocation Models

T. J. Valentine

The Economic Record, 1986, vol. 62, issue 1, 49-51

Abstract: This note considers the conditions under which asset demand equations arising out of mean‐variance portfolio allocation models have symmetric interest rate effects. If these conditions are satisfied, it is also valid to write the asset demand equations as functions of interest rate differentials rather than interest rate levels. The necessary condition for symmetry is that the ‘expected return effect’ be equal to zero. This will not always be the case and therefore symmetry of interest rate effects is an hypothesis which should be tested rather than a restriction which can be imposed on estimated asset demand equations. Statistical tests of this restriction often lead to its rejection.

Date: 1986
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