Assume a universe of n (large) securities for which the largest residual variance is of an order
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Assume a universe of n (large) securities for which the largest residual variance is of an order not larger than nσ2M. Construct as many different weighting schemes as you can that generate well-diversified portfolios.
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The maximum residual variance is tied to the number of securities n in the portfolio because as we increase the number of securities we are more likel...View the full answer
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