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On the weight sign of the global minimum variance portfolio

Wan-Yi Chiu and Ching-Hai Jiang

Finance Research Letters, 2016, vol. 19, issue C, 241-246

Abstract: We investigate the one-to-one mapping between the global minimum variance portfolio and regression hedge coefficients. The analysis demonstrates that assets with a superior (inferior) regression hedged effect in terms of marginal return create a negative (positive) weight. The asset has a weight of zero when both the asset and regression hedge enjoy the same marginal return. In addition, we develop a modified information ratio to compare the magnitudes of two arbitrary weights of the global minimum variance portfolio. From the perspective of hedging, we determine that the asset with a higher modified information ratio yields a larger weight.

Keywords: Global minimum variance portfolio; Inverse covariance matrix; Regression hedge; Modified information ratio (search for similar items in EconPapers)
JEL-codes: G11 C58 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:241-246