Mean-Variance-Instability Portfolio Analysis: A Case of Taiwan's Stock Market

Shawin Lee and Kuo-Ping Chang
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Shawin Lee: Department of Economics, National Tsing Hua University, Kuang Fu Rd, Hsinchu 300, TAIWAN, R.O.C.

Management Science, 1995, vol. 41, issue 7, 1151-1157

Abstract: This paper applies Talpaz, Harpaz, and Penson's (THP) (Talpaz, H., A. Harpaz, J. B. Penson, Jr. 1983. Risk and spectral instability in portfolio analysis. Eur. J. Oper. Res. 14 262--269.) mean-variance-instability portfolio selection model to eight selected Taiwan stocks during 1980--89 to demonstrate how instability preference affects the traditional mean-variance frontier. In contrast to THP's finding, the empirical results show that Taiwan's high-frequency stocks have high, not low, variance. This indicates that Taiwan investors, unlike U.S. investors, prefer to speculate in high-variance stocks. The empirical results also show that short selling may increase the risk of the portfolio when the investor is instability preferred.

Keywords: portfolio; analysis (search for similar items in EconPapers)
Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:41:y:1995:i:7:p:1151-1157

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