The Errors-in-Variable Model in the Optimal Portfolio Construction

• Autorzy: Anna Czapkiewicz , Małgorzata Machowska
• Języki publikacji: EN

Abstrakty

EN

In the paper we consider a modification of Sharpe's method used in classical portfolio analysis for optimal portfolio building. The conventional theory assumes there is a linear relationship between asset's return and market portfolio return, while the influence of all the other factors is not included. We propose not to neglect them any more, but include them into a model. Since the factors in question are often hard to measure or even characterize, we treat them as a disturbances on random variables used by classical Sharpe's method. The key idea of the paper is the modification of the classical approach by application of the errors-in-variable model. We assume that both independent (market portfolio return) as well as dependent (given asset's return) variables are randomly distributed values related with each other by linear relationship and we build the model used for parameters' estimation. To verify the model, we performed an analysis based on archival data from Warsaw Stock Exchange. The results are also included.(original abstract)

Słowa kluczowe

EN

Portfolio securities; Optimalization; Simulation

PL

Portfel papierów wartościowych; Optymalizacja; Symulacja

• Czasopismo: Decision Making in Manufacturing and Services
• Rocznik: 2007
• Tom: 1
• Numer: nr 1/2
• Strony: 49--57

Twórcy

autor

Anna Czapkiewicz

• AGH University of Science and Technology Kraków, Poland

autor

Małgorzata Machowska

• AGH University of Science and Technology Kraków, Poland

Bibliografia

• 1. O. Bunke, H. Bunke, Non Linear Regression, Functional Relationships, and Robust Methods, New York, Wiley, 1989.
• 2. N.R. Cox, The linear structural relation for several groups of data. Biometrika 63 (1976), 231-237.
• 3. G.R. Dolby, The ultrastructural relation a synthesis of the functional and structural relations. Biometrika, 63 (1976), 39-50.
• 4. E.J. Elton, M.J. Gruber, Nowoczesna teoria portfelowa i analiza papierów wartościowych. WIG Press, Warszawa 1998.
• 5. W.A. Fuller, Measurement Error Models, Wiley, New York 1967.
• 6. H.M. Markowitz, Portfolio Selection, Journal of Finance, 7 (1952), 1, 77-91.
• 7. O. Reiersol, Identifiability of a linear relation between variables which are subject to error, Econometrica 18 (1950), 575-589.
• 8. W.F. Sharpe, Portfolio theory and capital markets, Mc Graw-Hill, New York 1970.

Identyfikatory

DOI

10.7494/dmms.2007.1.2.49