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Notional portfolios and normalized linear returns

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  • Vic Norton

Abstract

The vector of periodic, compound returns of a typical investment portfolio is almost never a convex combination of the return vectors of the securities in the portfolio. As a result the ex post version of Harry Markowitz's "standard mean-variance portfolio selection model" does not apply to compound return data. We propose using notional portfolios and normalized linear returns to remedy this problem.

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  • Vic Norton, 2011. "Notional portfolios and normalized linear returns," Papers 1104.5393, arXiv.org.
    • Handle: RePEc:arx:papers:1104.5393
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    File URL: http://arxiv.org/pdf/1104.5393
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    Cited by:

    1. Vic Norton, 2012. "An algorithm for the orthogonal decomposition of financial return data," Papers 1206.2333, arXiv.org, revised Nov 2014.

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