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Beat equal weighting: a strategy for portfolio optimisation

Yong (Jimmy) Jin and Lie Wang propose an estimation method for optimal portfolio weights under parameter uncertainty

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  • Yong (Jimmy) Jin, Lie Wang
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Mean–variance portfolio optimisation is a central issue in modern finance theory and the portfolio management industry. The seminal work of Markowitz (1952) provides a beautiful framework for solving the asset allocation problem when the parameters (the mean vector μ and the variance-covariance matrix Σ) are given and the optimal portfolio weights are known as:

  w*∝Σ-1⁢μ  

However, in real-world applications the parameters are unknown. Previous papers and

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