The Journal of Finance * Vol. Lvi, No. 3 * June 2001 the Efficient Use of Conditioning Information in Portfolios Sor of Finance and Management Science and Adjunct Professor of Statistics at the University of Washington. We Are Grateful To

We study the properties of unconditional minimum-variance portfolios in the presence of conditioning information. Such portfolios attain the smallest variance for a given mean among all possible portfolios formed using the conditioning information. We provide explicit solutions for n risky assets, either with or without a riskless asset. Our solutions provide insights into portfolio management problems and issues in conditional asset pricing.ance analysis has been a central focus of financial economics. Mean variance theory is used in portfolio analysis, asset pricing, investment performance measurement, and topics in corporate finance. Mean variance analysis also has other important economic applications. Problems involving quadratic objective functions or loss functions generally incorporate a mean variance analysis. Examples include economic policy under uncertainty, labor markets , monetary policy, inventory problems, hedging, resource economics, and a host of other applications. This paper provides solutions to mean variance optimization problems in the presence of conditioning information. Conditioning information is present when the optimal solution may be a function of information to be received about the probability distribution of future outcomes. For example, empiri

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