Understanding the Long-Only Minimum Variance Portfolio

Abstract: 

For a covariance matrix coming from a factor model of returns, we investigate the relationship between the long-only global minimum variance portfolio and the asset exposures to the factors. In the case of a 1-factor model, we provide a rigorous and explicit description of the long-only solution in terms of the parameters of the covariance matrix. For q > 1 factors, we provide a description of the long-only portfolio in geometric terms. The results are illustrated with empirical daily returns of US stocks.

Author: 
Publication date: 
June 15, 2025
Publication type: 
Journal Article