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Zbl 0545.90005
McInish, Thomas H.; Morse, Joel N.; Saniga, Erwin M.
Portfolio selection to achieve a target beta. (English)
[J] RAIRO, Rech. Opér. 18, 131-145 (1984). ISSN 0399-0559

Summary: Suppose an investor wishes to construct a portfolio of size k securities from a population of n securities ($k\le n)$ such that a particular portfolio or target beta $(\beta\sb p)$ is achieved. Since $\beta\sb p$ is a random variable, there will be some difference between a portfolio's realized beta and the target beta. We investigate the problem of finding the combination of k securities that minimizes the variance of $\beta\sb p$, or equivalently, minimizes the probability of a particular difference in target and realized beta. We also seek answers to a number of related questions. These are concerned with the effect on the variance of $\beta\sb p$ of naive selection of securities, of the choice of k, and of the presence of a risk-free asset. We also examine the characteristics of securities included in the optimal portfolio.

MSC 2000:: *91B28 Finance etc.

Keywords: finance; investments; target beta; optimal portfolio

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