Opportunity Cost of Constrained Portfolio Strategies

Financial investors frequently confront factors such
as financial regulations that prevent them from
attaining a first-best solution to the optimal asset
allocation problem. For example, they may be required
to implement a mean-variance efficient portfolio, or
they may be constrained to invest in a
non-well-diversified choice of assets, such as
holding stocks only or bonds only, or they may be
constrained from short-selling. Such constraints
imply the imposition of a welfare loss on the
investor. That a welfare loss is inevitable is well
known, but the portfolio choice literature thus far
has offered little guidance on how to measure the
loss, and how various factors will influence the
amount of the loss. This volume tackles the welfare
loss problem in a comprehensive and rigorous manner.
Using a combination of mathematical analysis and
computer simulation, deep insight is achieved into a
variety of constrained portfolio choice problems. The
book will be found highly illuminating to portfolio
choice theorists as well as to students and
practitioners of investment analysis.

Autorentext

Alice A. Melkumian, Ph.D. in Economics (2003,West Virginia University) joined Western Illinois University in 2003 as an Assistant Professor of Economics. Dr. Melkumian is specializing in financial economics, monetary economics, and macroeconomics. Her current work examines the cost of various sub-optimal portfolio strategies.

Klappentext
Financial investors frequently confront factors such as financial regulations that prevent them from attaining a first-best solution to the optimal asset allocation problem. For example, they may be required to implement a mean-variance efficient portfolio, or they may be constrained to invest in a non-well-diversified choice of assets, such as holding stocks only or bonds only, or they may be constrained from short-selling. Such constraints imply the imposition of a welfare loss on the investor. That a welfare loss is inevitable is well known, but the portfolio choice literature thus far has offered little guidance on how to measure the loss, and how various factors will influence the amount of the loss. This volume tackles the welfare loss problem in a comprehensive and rigorous manner. Using a combination of mathematical analysis and computer simulation, deep insight is achieved into a variety of constrained portfolio choice problems. The book will be found highly illuminating to portfolio choice theorists as well as to students and practitioners of investment analysis.