Premium
A Further Comment on the Zero Row‐Sum Property of Mean‐Variance Portfolio Allocation Models
Author(s) -
VALENTINE T. J.
Publication year - 1986
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1986.tb00880.x
Subject(s) - portfolio , zero (linguistics) , asset (computer security) , variance (accounting) , interest rate , economics , econometrics , mathematics , property (philosophy) , portfolio allocation , asset allocation , symmetry (geometry) , modern portfolio theory , rate of return , mathematical economics , financial economics , computer science , finance , linguistics , philosophy , geometry , computer security , accounting , epistemology
This note considers the conditions under which asset demand equations arising out of mean‐variance portfolio allocation models have symmetric interest rate effects. If these conditions are satisfied, it is also valid to write the asset demand equations as functions of interest rate differentials rather than interest rate levels. The necessary condition for symmetry is that the ‘expected return effect’ be equal to zero. This will not always be the case and therefore symmetry of interest rate effects is an hypothesis which should be tested rather than a restriction which can be imposed on estimated asset demand equations. Statistical tests of this restriction often lead to its rejection.