The similarity between mean-variance and mean-Gini: Testing for equality of Gini correlations Academic Article uri icon

abstract

  • The Mean-Variance (MV) is the most popular methodology for constructing portfolios and is not consistent with the expected utility hypothesis except in cases where there are strong assumptions of either a quadratic utility or normally distributed assets' returns. The Mean- Gini (MG) is an alternative method that is consistent with expected utility theory without the need to restrict the class of the underlying distributions. However, it is more complicated to use than MV. Under certain conditions, the construction of a MG efficient portfolio is identical in structure to the construction of a MV efficient portfolio. The aim of this paper is to develop a statistical procedure to test whether the conditions that are required for the two methods to be identical in structure hold, and to illustrate its use using data from the US markets. It is found that the conditions do not hold in the market as a whole, but may hold if the …

publication date

  • January 1, 2008