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Jackknife Estimator for Tracking Error Variance of Optimal Portfolios

Author

Listed:
  • Gopal K. Basak

    () (Indian Statistical Institute, Kolkata 700108, India)

  • Ravi Jagannathan

    () (Northwestern University and NBER, Evanston, Illinois 60208)

  • Tongshu Ma

    () (Binghamton University, Binghamton, New York 13902)

Abstract

We develop a jackknife estimator for the conditional variance of a minimum tracking error variance portfolio constructed using estimated covariances. We empirically evaluate the performance of our estimator using an optimal portfolio of 200 stocks that has the lowest tracking error with respect to the S& P 500 benchmark when three years of daily return data are used for estimating covariances. We find that our jackknife estimator provides more precise estimates and suffers less from in-sample optimism when compared to conventional estimators.

Suggested Citation

  • Gopal K. Basak & Ravi Jagannathan & Tongshu Ma, 2009. "Jackknife Estimator for Tracking Error Variance of Optimal Portfolios," Management Science, INFORMS, vol. 55(6), pages 990-1002, June.
  • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:6:p:990-1002
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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bodnar, Taras & Parolya, Nestor & Schmid, Wolfgang, 2013. "On the equivalence of quadratic optimization problems commonly used in portfolio theory," European Journal of Operational Research, Elsevier, vol. 229(3), pages 637-644.
    2. Kourtis, Apostolos & Dotsis, George & Markellos, Raphael N., 2012. "Parameter uncertainty in portfolio selection: Shrinking the inverse covariance matrix," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2522-2531.
    3. Behr, Patrick & Guettler, Andre & Miebs, Felix, 2013. "On portfolio optimization: Imposing the right constraints," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1232-1242.
    4. 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.
    5. Füss, Roland & Miebs, Felix & Trübenbach, Fabian, 2014. "A jackknife-type estimator for portfolio revision," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 14-28.
    6. Varga-Haszonits, Istvan & Caccioli, Fabio & Kondor, Imre, 2016. "Replica approach to mean-variance portfolio optimization," LSE Research Online Documents on Economics 68955, London School of Economics and Political Science, LSE Library.

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