Wolfram Library Archive

Courseware Demos MathSource Technical Notes
All Collections Articles Books Conference Proceedings
Title Downloads

Optimal Portfolios on (In)Efficient Markets

Jan Hurt
Organization: Charles University of Prague

Wolfram Technology Conference 2011
Conference location

Champaign, Illinois, USA

We study the performance of portfolios of assets from the point of view of an extended efficient market hypothesis. We assume that the investors make their decisions exclusively on the information based on the expected returns and the covariance structure of returns, and that this information is available to all investors. Further, we suppose that the investors' behavior is rational in the following sense: (1) the investors choose portfolios with the highest expected return among those with the same risk; and (2) the investors choose portfolios with the smallest risk among those with the same expected return (risk aversion). Under these assumptions, the whole market should be in an equilibrium.

In practice, even if data comes from the set of highly rated companies, it exhibits severe violations from what might be considered as a rational behavior of the market. In this contribution, we analyze the impact of this inconsistency on the optimal portfolio selection and the influence upon the re-balancing portfolio. The data from the Mathematica FinancialData Integrated Data Source was used for numerical illustrations as well for encouragement for this presentation.

*Wolfram Technology

Downloads Download Wolfram CDF Player

OptimalPortfoliosOn(In)EfficientMarkets.cdf (4.2 MB) - CDF Document
OptimalPortfoliosOn(In)EfficientMarkets.nb (4.2 MB) - Mathematica Notebook