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Orthogonal Subgroups for Portfolio Choice

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  • Hennessy, David A.

Abstract

The orthogonal group on the location-scale family is at the foundation of the stochastic structure underlying CAPM. Relaxing that assumption, we show how less restrictive matrix subgroup symmetries on the location-scale family of asset returns bound asset choices. Sign symmetry is a special case and provides conditions such that the investor does not sell short. Group-generated welfare orderings are also identified.

Suggested Citation

  • Hennessy, David A., 2004. "Orthogonal Subgroups for Portfolio Choice," Staff General Research Papers Archive 11993, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:11993
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    References listed on IDEAS

    as
    1. David A. Hennessy & Harvey E. Lapan, 2003. "An algebraic theory of portfolio allocation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(1), pages 193-210, August.
    2. Chamberlain, Gary, 1983. "A characterization of the distributions that imply mean--Variance utility functions," Journal of Economic Theory, Elsevier, vol. 29(1), pages 185-201, February.
    3. Owen, Joel & Rabinovitch, Ramon, 1983. "On the Class of Elliptical Distributions and Their Applications to the Theory of Portfolio Choice," Journal of Finance, American Finance Association, vol. 38(3), pages 745-752, June.
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    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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