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Dominating estimators for minimum-variance portfolios

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  • Frahm, Gabriel
  • Memmel, Christoph

Abstract

In this paper, we derive two shrinkage estimators for minimum-variance portfolios that dominate the traditional estimator with respect to the out-of-sample variance of the portfolio return. The presented results hold for any number of assets d>=4 and number of observations n>=d+2. The small-sample properties of the shrinkage estimators as well as their large-sample properties for fixed d but n-->[infinity] and n,d-->[infinity] but n/d-->q

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 159 (2010)
Issue (Month): 2 (December)
Pages: 289-302

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Handle: RePEc:eee:econom:v:159:y:2010:i:2:p:289-302

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Covariance matrix estimation Minimum-variance portfolio Stein estimation Naive diversification Shrinkage estimator;

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References

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Citations

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Cited by:
  1. Francisco Rubio & Xavier Mestre & Daniel P. Palomar, 2011. "Performance analysis and optimal selection of large mean-variance portfolios under estimation risk," Papers 1110.3460, arXiv.org.
  2. Taras Bodnar & Nestor Parolya & Wolfgang Schmid, 2012. "On the Equivalence of Quadratic Optimization Problems Commonly Used in Portfolio Theory," Papers 1207.1029, arXiv.org, revised Apr 2013.
  3. DeMiguel, Victor & Martin-Utrera, Alberto & Nogales, Francisco J., 2013. "Size matters: Optimal calibration of shrinkage estimators for portfolio selection," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3018-3034.
  4. Zhou, Qing & Faff, Robert & Alpert, Karen, 2014. "Bias correction in the estimation of dynamic panel models in corporate finance," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 494-513.
  5. Olivier Ledoit & Michael Wolf, 2014. "Nonlinear shrinkage of the covariance matrix for portfolio selection: Markowitz meets Goldilocks," ECON - Working Papers 137, Department of Economics - University of Zurich.
  6. Taras Bodnar & Nestor Parolya & Wolfgang Schmid, 2012. "A Closed-Form Solution of the Multi-Period Portfolio Choice Problem for a Quadratic Utility Function," Papers 1207.1003, arXiv.org.
  7. Frahm, Gabriel, 2010. "An analytical investigation of estimators for expected asset returns from the perspective of optimal asset allocation," Discussion Papers in Statistics and Econometrics 1/10, University of Cologne, Department for Economic and Social Statistics.
  8. Vahe Avagyan & Andrés M. Alonso & Francisco J. Nogales, 2014. "Improving the graphical lasso estimation for the precision matrix through roots ot the sample convariance matrix," Statistics and Econometrics Working Papers ws141208, Universidad Carlos III, Departamento de Estadística y Econometría.
  9. Hao Liu & Winfried Pohlmeier, 2013. "Risk Preferences and Estimation Risk in Portfolio Choice," Working Paper Series 47_13, The Rimini Centre for Economic Analysis.
  10. Yen, Yu-Min & Yen, Tso-Jung, 2014. "Solving norm constrained portfolio optimization via coordinate-wise descent algorithms," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 737-759.
  11. Taras Bodnar & Nestor Parolya & Wolfgang Schmid, 2014. "Estimation of the Global Minimum Variance Portfolio in High Dimensions," Papers 1406.0437, arXiv.org.

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