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Erschienen in:
2014 | OriginalPaper | Buchkapitel
Efficient Subset Selection in Large-Scale Portfolio with Singular Covariance Matrix
verfasst von : Chunfu Jiang
Erschienen in: Proceedings of the Seventh International Conference on Management Science and Engineering Management
Verlag: Springer Berlin Heidelberg
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In the classic mean-variance model, the covariance matrix is supposed to be positive definite or nonsingular. However, the degenerate portfolio can arise from multi-collinearity and correlation of assets returns in large-scale portfolio. In this paper, we investigate the issue of which assets can be removed from the original portfolio. We propose a new concept of efficient subset of portfolio for meanvariance optimizing investor. Applying the generalized inverse matrix, we derive some conditions for determining the efficient subset. In addition, a new three fund separation result is also obtained as an economic interpretation, which in fact gives an extension of the mean-variance spanning.