MEAN-VARIANCE-INSTABILITY PORTFOLIO ANALYSIS - A CASE OF TAIWAN STOCK-MARKET

This paper applies Talpaz, Harpaz, and Penson's (THP) (1983) mean-vari ance-instability portfolio selection model to eight selected Taiwan st ocks during 1980-89 to demonstrate how instability preference affects the traditional mean-variance frontier. In contrast to THP's finding, the empirical results show that Taiwan's high-frequency stocks have hi gh, not low, variance. This indicates that Taiwan investors, unlike U. S. investors, prefer to speculate in high-variance stocks. The empiric al results also show that short selling may increase the risk of the p ortfolio when the investor is instability preferred.