Portfolio selection: An alternative approach

Abdulnasser Hatemi-J and Youssef El-Khatib

Economics Letters, 2015, vol. 135, issue C, 141-143

Abstract: This paper provides a solution to the portfolio diversification problem based on finding optimal weights that will result in maximizing the risk adjusted return of the underlying portfolio subject to the budget constraint contrary to the standard approach that aims at finding the required weights based on minimizing the variance of the portfolio subject to the budget constraint. A mathematical proof is given for the suggested solution. An application is provided to the portfolio diversification opportunity between all the share market indexes of the two largest economies in the world. The results show that the portfolio created by our suggested approach leads to almost one percent increase in the risk adjusted return compared to the portfolio created by the standard method.

Keywords: Portfolio diversification; Optimization; Return and risk (search for similar items in EconPapers)
JEL-codes: C6 G10 G12 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:135:y:2015:i:c:p:141-143

DOI: 10.1016/j.econlet.2015.08.021

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