Dominating estimators for the global minimum variance portfolio
AbstractTwo shrinkage estimators for the global minimum variance portfolio that dominate the traditional estimator with respect to the out-of-sample variance of the portfolio return are derived. The presented results hold for any number of observations n >= d 2 and number of assets d >= 4. The small-sample properties of the shrinkage estimators and also their large-sample properties for fixed d but n -> infinity as well as n,d -> infinity but n/d -> q
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2009,01.
Date of creation: 2009
Date of revision:
Covariance matrix estimation; global minimum variance portfolio; James-Stein estimation; naive diversification; shrinkage estimator;
Other versions of this item:
- Frahm, Gabriel & Memmel, Christoph, 2008. "Dominating estimators for the global minimum variance portfolio," Discussion Papers in Statistics and Econometrics 2/08, University of Cologne, Department for Economic and Social Statistics.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-05 (All new papers)
- NEP-ECM-2009-09-05 (Econometrics)
- NEP-RMG-2009-09-05 (Risk Management)
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