| Content | This paper introduces a new approach to constructing optimal mean-variance portfolios. The approach relies on a novel unconstrained regression representation of the mean-variance optimization problem combined with high-dimensional sparse-regression methods. Our estimated portfolio, under a mild sparsity assumption, controls for risk and attains the maximum expected return as both the numbers of assets and observations grow. The superior properties of our approach are demonstrated through comprehensive simulation and empirical analysis. Notably, using our strategy, we find that investing in individual stocks, in addition to the Fama-French three-factor portfolios, leads to substantially improved performance. |
