Abstract
It is shown that the capitalization-weighted portfolio is mathematically required to coincide with the minimum-variance portfolio, provided both portfolios are defined with respect to the same (arbitrary) collection of equities having linearly independent returns. This result is a logical consequence of the law of iterated expectations and has important implications for equity return covariance structure.
Information
Published: 1 January 2009
First available in Project Euclid: 3 August 2009
zbMATH: 1271.91099
Digital Object Identifier: 10.1214/09-LNMS5721
Subjects:
Primary:
91B28
Secondary:
62H25
Keywords:
capitalization-weighted portfolio
,
equity portfolio optimization
,
equity return covariance structure
,
Law of Iterated Expectations
,
minimum-variance portfolio
Rights: Copyright © 2009, Institute of Mathematical Statistics
