Selection of portfolios that minimise the variance of the estimated beta for efficient portfolios in Markowitz's sense

Abstract

The work that we present below is the practical application of the model proposed by McInish et al. (1984), where the main objective is to find a portfolio of risky assets – formed by individual asset weights – that minimizes the variance of its estimated beta with respect to market performance. In this paper we have chosen, as target betas, the estimated betas of twelve efficient portfolios in the sense of Markowitz formed by seven actions of the IBEX 35, which has allowed us to compare the results provided by both models. The main conclusion of the work is that, for the considered data, both models coincide in their results, that is to say that the efficient portfolios in the sense of Markowitz minimize the variance of their estimated beta with the market, starting from a beta around 1.3