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Estimating the global Minimum Variance Portfolio

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Author Info
Alexander Kempf
Christoph Memmel

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Abstract

According to standard portfolio theory, the tangency portfolio is the only efficient stock portfolio. However, empirical studies show that an investment in the global minimum variance portfolio often yields better out-of-sample results than does an investment in the tangency portfolio and suggest investing in the global minimum variance portfolio. But little is known about the distributions of the weights and return parameters of this portfolio. Our contribution is to determine these distributions. By doing so, we answer several important questions in asset management.

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Publisher Info
Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 58 (2006)
Issue (Month): 4 (October)
Pages: 332-348
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Handle: RePEc:sbr:abstra:v:58:y:2006:i:4:p:332-348

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Related research
Keywords: Estimation Risk; Global Minimum Variance Portfolio; Weight Estimation;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

Cited by:
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  1. Taras Bodnar & Wolfgang Schmid & Taras Zabolotskyy, 2009. "Statistical inference of the efficient frontier for dependent asset returns," Statistical Papers, Springer, vol. 50(3), pages 593-604, June. [Downloadable!] (restricted)
Statistics
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