From Efficient Frontier to Fragile Frontier: A Global Sensitivity Analysis of Markowitz Portfolios

Abstract

In mean-variance portfolio analysis, the efficient frontier represents the optimal trade-off between expected return and risk, assuming stable underlying parameters. This paper investigates portfolio fragility: the instability of optimal weights, risk-adjusted performance, and diversification when model inputs and construction choices are jointly perturbed. Combining constrained Markowitz optimization with variance-based global sensitivity analysis (Sobol indices), we map out how input uncertainty and portfolio-construction choices propagate along the target-return dimension. Using an empirical universe of multi-asset exchange-traded funds (ETFs), we find a distinct transition in the sensitivity structure: in the baseline experiment, lower target returns are dominated by l2 regularization, whereas aggressive return requirements become increasingly sen- sitive to the weight cap and expected-return perturbations. This shift coincides with a sharp drop in effective diversification and a rise in weight dispersion. We extend the analysis to a multi-universe fragility atlas, showing that under a com- mon absolute concentration rule, the smallest universe is weight-cap-driven in the aggressive return region, while larger sampled universes remain more often regularization-driven. The fragile frontier serves as a direct diagnostic tool to evaluate the structural robustness of constrained optimizers without altering the underlying allocation rule.