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Annals of Operations Research

, Volume 45, Issue 1, pp 333–347 | Cite as

On the number of securities which constitute an efficient portfolio

  • Munenori Nakasato
  • Koichi Furukawa
Article

Abstract

The purpose of this paper is to discuss the relationship between the number of securities which constitute an efficient portfolio as defined by the standard mean-variance portfolio selection model and the number of periods used to compute the efficient portfolio. It is shown that the number of data gives the upper bound of the number of securities which constitute an efficient portfolio, when each efficient portfolio is unique for a given expected return. Empirical tests based on actual return data show that this upper bound is very tight when the number of data is small. However, when more data are used, the upper bound becomes looser. This result is incompatible with the market efficiency. These empirical tests also indicate that a very tight upper bound often causes a degenerate case ensuring zero-variance portfolios.

Keywords

Standard mean-variance portfolio selection model efficient portfolio efficient frontier market efficiency 

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Copyright information

© J.C. Baltzer AG, Science Publishers 1993

Authors and Affiliations

  • Munenori Nakasato
    • 1
  • Koichi Furukawa
    • 2
  1. 1.School of International Politics, Economics, and BusinessAoyama Gakuin UniversityTokyoJapan
  2. 2.Department of Industrial Engineering and ManagementTokyo Institute of TechnologyTokyoJapan

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