Understanding the outperformance of the minimum variance portfolio

Ziemowit Bednarek and Pratish Patel

Finance Research Letters, 2018, vol. 24, issue C, 175-178

Abstract: Minimum variance portfolio (MVP) seems to outperform the mean-variance optimized portfolio on a risk-adjusted basis. Scherer (2011) conjectures that the MVP tilts toward low beta and low idiosyncratic risk assets. Consequently, the MVP capitalizes on both the beta anomaly and the idiosyncratic risk anomaly. By providing a counter-example, Yanushevsky and Yanushevsky (2015) show that the proof of the conjecture is incomplete. In this article, we provide conditions under which Scherer (2011) conjecture remains valid. Specifically, we show that the counter-example in Yanushevsky and Yanushevsky (2015) represents a knife-edge case. We also analytically identify the MVP weight sign.

Keywords: Minimum variance portfolio; Market portfolio; Bet against beta; Pricing anomaly (search for similar items in EconPapers)
JEL-codes: C14 G11 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:24:y:2018:i:c:p:175-178

DOI: 10.1016/j.frl.2017.09.005

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