In this article, we analyze the impact of weights constraints in portfolio theory using the seminal work of Jagannathan and Ma (2003). They show that solving the global minimum variance portfolio problem with some constraints on weights is equivalent to use a shrinkage estimate of the covariance...

Despite portfolio construction based on expected utility theory and Markowitz mean-variance optimization having been the foundation of financial economic theory for more than 50 years, its practical application by financial advisors has been limited. Particularly troubling are the lack of a...

A well-known pitfall of Markowitz (1952) portfolio optimization is that the sample covariance matrix, which is a critical input, is very erroneous when there are many assets to choose from. If unchecked, this phenomenon skews the optimizer towards extreme weights that tend to perform poorly in...