Boundaries of the risk aversion coefficient: Should we invest in the global minimum variance portfolio?

摘要

Due to estimation risk, the portfolios on the efficient frontier can be statistically indistinguishable from the global minimum variance portfolio. We provide a methodology for determining a bound on the risk aversion coefficient, which separates portfolios that are equivalent or significantly different from the global minimum variance (GMV) portfolio. We conclude that investing in the GMV portfolio is statistically justified for investors with a very wide range of the risk aversion coefficients.