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Stepwise expanding the frontier one asset at a time

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  • Chiu, Wan-Yi

Abstract

Ukhov (2006) characterizes some rules to compare the global minimum variance portfolio (GMVP) for expanding the frontier one asset at a time. Based on a regression hedge, this paper tests the GMVP’s return and weights for Ukhov’s classification. The illustration using DOW30 assets produces weak t-statistics of the GMVP returns across frontiers. In contrast, the evidence shows significant t-statistics when examining the portfolio weights. As an application of the weight t-statistics, we present a stepwise approach to constructing the frontier. Our stepwise GMVP’s standard deviation also outperforms the simulated results for all the portfolio sizes.

Suggested Citation

  • Chiu, Wan-Yi, 2022. "Stepwise expanding the frontier one asset at a time," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s154461232100324x
    DOI: 10.1016/j.frl.2021.102285
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    References listed on IDEAS

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    1. Ukhov, Andrey D., 2006. "Expanding the frontier one asset at a time," Finance Research Letters, Elsevier, vol. 3(3), pages 194-206, September.
    2. Chiu, Wan-Yi & Jiang, Ching-Hai, 2016. "On the weight sign of the global minimum variance portfolio," Finance Research Letters, Elsevier, vol. 19(C), pages 241-246.
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    4. Gabriel Frahm, 2010. "Linear statistical inference for global and local minimum variance portfolios," Statistical Papers, Springer, vol. 51(4), pages 789-812, December.
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    8. Merton, Robert C., 1972. "An Analytic Derivation of the Efficient Portfolio Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(4), pages 1851-1872, September.
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