Journal article
The maximum-return-and-minimum-volatility effect: evidence from choosing risky and riskless assets to form a portfolio
Risk management (Leicestershire, England), Vol.23(1-2)
01 Jun 2021
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
The healthcare sector has the highest mean and a low correlation with the business cycle, while Treasury Bills (T-Bills) have the lowest variance in our study. In this paper, we examine the conjecture of whether investors should choose an asset with the highest expected return and an asset with the smallest variance even when the mean-variance rule says "NO". We examine the conjecture by comparing the performance of portfolios with and without healthcare and 6-M T-bills in the US market. Our findings support the conjecture that investors prefer to invest in portfolios with both healthcare and 6-M T-bills. In addition, we find an arbitrage opportunity in the markets and our findings reject market efficiency. Based on our findings, academics could incorporate both maximum-return and minimum-volatility assets to construct a maximum-return-and-minimum-volatility aggressive-and-yet-defensive trading approach that stochastically dominates most of other assets/portfolios. Thus, our findings can be called the maximum-return-and-minimum-volatility anomaly or the maximum-return-and-minimum-volatility puzzle, or the maximum-return-and-minimum-volatility paradox.
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Details
- Title
- The maximum-return-and-minimum-volatility effect: evidence from choosing risky and riskless assets to form a portfolio
- Creators
- Zhihui Lv - Guangdong University of Foreign StudiesAmanda M. Y. Chu - Education University of Hong KongWing Keung Wong - The Hang Seng University of Hong KongThomas C. Chiang - Drexel University
- Publication Details
- Risk management (Leicestershire, England), Vol.23(1-2)
- Publisher
- Springer Nature
- Number of pages
- 26
- Grant note
- China Medical University Hospital Northeast Normal University RG 66/2018-2019R / Education University of Hong Kong Asia University 106-2410-H-468-002; 107-2410-H-468-002-MY3 / Ministry of Science and Technology (MOST), Taiwan; Ministry of Science and Technology, Taiwan Hang Seng University of Hong Kong Drexel University 12500915 / Research Grants Council (RGC) of Hong Kong; Hong Kong Research Grants Council
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- [Retired Faculty]
- Identifiers
- 991019167636504721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Social Sciences, Interdisciplinary