On the estimation of the global minimum variance portfolio

Arbeitspapier

Expected returns can hardly be estimated from time series data. Therefore, many recent papers suggest investing in the global minimum variance portfolio. The weights of this portfolio depend only on the return variances and covariances, but not on the expected returns. The weights of the global minimum variance portfolio are usually estimated by replacing the true return covariance matrix by its time series estimator. However, little is known about the distributions of the estimated weights and return parameters of this portfolio. Our contribution is to determine these distributions. The knowledge of these distributions allows us to calculate the extent of the estimation risk an investor faces and to answer important questions in asset management.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR Working Paper ; No. 05-02

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Portfolio Choice; Investment Decisions
• Subject: Global Minimum Variance Portfolio ; Weight Estimation ; Estimation Risk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kempf, Alexander ; Memmel, Christoph
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/57730
• Last update: 10.03.2025, 11:45 AM CET