The Efficient Frontier from a LASSO Solver

Abstract

Schmelzer and Hastie prove that Markowitz's Critical Line Algorithm and the LASSO path trace the same curve. This companion note checks that result numerically with a stock LASSO solver, \texttt{lars\_path} from \texttt{scikit-learn}, and no portfolio software. It covers long--short portfolios under a leverage cap, fixed leverage with varying risk appetite, and the classical long-only, fully invested frontier. Every corner the path returns meets its own optimality conditions to about $10^{-13}$ and agrees with independent quadratic-programming solvers, on factor models of up to 500 assets, on the Fama--French size and book-to-market portfolios, and on daily returns of 494 S\&P~500 stocks. Called naively, the long-only path stops at the maximum-Sharpe portfolio. One shift of the response, by an amount computed in advance, lets a single call reach the minimum-variance portfolio. The script, its checks, the Fama--French returns and an R cross-check are published, with a locked environment, so that anyone can repeat them.