Dominating estimators for the global minimum variance portfolio

Arbeitspapier

Two 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 <= infinity are investigated. Further, a small-sample test for the question whether it is better to completely ignore time series information in favor of naive diversification is presented.

Object Details

• ISBN: 978-3-86558-490-8
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 2 ; No. 2009,01

Classification and Topics

• Classification: Wirtschaft ; Estimation: General ; Portfolio Choice; Investment Decisions
• Subject: Covariance matrix estimation ; global minimum variance portfolio ; James-Stein estimation ; naive diversification ; shrinkage estimator ; Portfolio-Management ; Varianzanalyse ; Schätztheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Frahm, Gabriel ; Memmel, Christoph
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/27684
• Last update: 10.03.2025, 11:42 AM CET