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Robust estimation of style analysis coefficients

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

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  • Michele La Rocca

    (University of Salerno, Department of Economics and Statistics)

  • Domenico Vistocco

    (University of Cassino, Dipartimento di Scienze Economiche)

Abstract

Style analysis, as originally proposed by Sharpe, is an asset class factor model aimed at obtaining information on the internal allocation of a financial portfolio and at comparing portfolios with similar investment strategies. The classical approach is based on a constrained linear regression model and the coefficients are usually estimated exploiting a least squares procedure. This solution clearly suffers from the presence of outlying observations. The aim of the paper is to investigate the use of a robust estimator for style coefficients based on constrained quantile regression. The performance of the novel procedure is evaluated by means of a Monte Carlo study where different sets of outliers (both in the constituent returns and in the portfolio returns) have been considered.

Suggested Citation

  • Michele La Rocca & Domenico Vistocco, 2010. "Robust estimation of style analysis coefficients," Springer Books, in: Marco Corazza & Claudio Pizzi (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 163-172, Springer.
    • Handle: RePEc:spr:sprchp:978-88-470-1481-7_17
    DOI: 10.1007/978-88-470-1481-7_17
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