Optimal Portfolio Selection and Cutoff Rates of Security Performance: A Multi‐Index Case*

ABSTRACT The present study performs portfolio analysis using a multi‐index model in the diagonal form. In a mean‐variance framework, an alternative solution to a portfolio optimization problem is derived, providing analytical and computational improvements. This leads to a proof of a crucial functional property of cutoff rates of security performance in the solution, thus providing formal justification for a nonranking procedure of optimal …