On the sensitivity of mean-variance-efficient portfolios to changes in asset means: some analytical and computational results

This paper investigates the sensitivity of mean-variance(MV)-efficientportfolios to changes in the means of individual assets. Whenonly a budget constraint is imposed on the investment problem,the analytical results indicate that an MV-efficient portfolio'sweights, mean, and variance can be extremely sensitive to changesin asset means. When nonnegativity constraints are also imposedon the problem, the computational results confirm that a positivelyweighted MV-efficient portfolio's weights are extremely sensitiveto changes in asset means, but the portfolio's returns are not.A surprisingly small increase in the mean of just one assetdrives half the securities from the portfolio. Yet the portfolio'sexpected return and standard deviation are virtually unchanged.