The Development of Mean-Variance Efficient Portfolios: 30 Years Later

Abstract

In 1992, in the initial year of this journal’s publication, Guerard and Takano reported mean-variance efficient portfolios for the Japanese and US equity markets and showed that the use of a regression-weighted composite model of earnings, book value, cash flow, sales, and their relative variables outperformed their respective equity benchmarks by approximately 400 basis points annually. Two years later, Markowitz and Xu tested the composite model strategy and found that its excess returns were statistically significant from a variety of models tested and that the composite model strategy was not the result of data mining. For the 30th anniversary issue, the authors of this article report robust regression modeling results for the 2001–2020 period using the latest features in R and the latest commercially available multi-factor models for portfolio selection. Quantitative investing requires constant implementation and discipline to maximize client wealth. The authors’ results suggest that stock selection models can be effectively employed to deliver excess returns.