| Abstract: | The problem of selecting optimal portfolios is examined using the general multi-index model. This model is useful because it allows investors to diversify across different types of assets and thereby exploit or hedge against a wide variety of economic conditions. The analysis is carried out in a stable Paretian framework with and without short sales. As such, it not only encompasses the mean-variance results for a variety of index models as special cases, but also provides a broad framework for applying the arbitrage pricing theory to portfolio decision making. |
