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Mean-Variance-Instability Portfolio Analysis: A Case of Taiwan's Stock Market

Author

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  • Shawin Lee

    (Department of Economics, National Tsing Hua University, Kuang Fu Rd, Hsinchu 300, TAIWAN, R.O.C.)

  • Kuo-Ping Chang

    (Department of Economics, National Tsing Hua University, Kuang Fu Rd, Hsinchu 300, TAIWAN, R.O.C.)

Abstract

This paper applies Talpaz, Harpaz, and Penson's (THP) (Talpaz, H., A. Harpaz, J. B. Penson, Jr. 1983. Risk and spectral instability in portfolio analysis. Eur. J. Oper. Res. 14 262--269.) mean-variance-instability portfolio selection model to eight selected Taiwan stocks during 1980--89 to demonstrate how instability preference affects the traditional mean-variance frontier. In contrast to THP's finding, the empirical results show that Taiwan's high-frequency stocks have high, not low, variance. This indicates that Taiwan investors, unlike U.S. investors, prefer to speculate in high-variance stocks. The empirical results also show that short selling may increase the risk of the portfolio when the investor is instability preferred.

Suggested Citation

  • Shawin Lee & Kuo-Ping Chang, 1995. "Mean-Variance-Instability Portfolio Analysis: A Case of Taiwan's Stock Market," Management Science, INFORMS, vol. 41(7), pages 1151-1157, July.
    • Handle: RePEc:inm:ormnsc:v:41:y:1995:i:7:p:1151-1157
    DOI: 10.1287/mnsc.41.7.1151
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    Citations

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    Cited by:

    1. Atkinson, C. & Alvarez, M. J., 2001. "The influence of perceived stock value price histories in the mean-variance-instability model," European Journal of Operational Research, Elsevier, vol. 128(1), pages 185-191, January.
    2. Dat Bue Lock, 2007. "The Taiwan stock market does follow a random walk," Economics Bulletin, AccessEcon, vol. 7(3), pages 1-8.
    3. Shing, Chue & Nagasawa, Hiroyuki, 1999. "Interactive decision system in stochastic multiobjective portfolio selection," International Journal of Production Economics, Elsevier, vol. 60(1), pages 187-193, April.
    4. Syouching Lai & Hungchih Li, 2007. "The performance evaluation for fund of funds by comparing asset allocation of mean-variance model or genetic algorithms to that of fund managers," Applied Financial Economics, Taylor & Francis Journals, vol. 18(6), pages 485-501.

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    Keywords

    portfolio analysis;

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