Can volatility solve the naive portfolio puzzle?
From MaRDI portal
(Redirected from Publication:6089392)
Abstract: We investigate whether sophisticated volatility estimation improves the out-of-sample performance of mean-variance portfolio strategies relative to the naive 1/N strategy. The portfolio strategies rely solely upon second moments. Using a diverse group of econometric and portfolio models across multiple datasets, most models achieve higher Sharpe ratios and lower portfolio volatility that are statistically and economically significant relative to the naive rule, even after controlling for turnover costs. Our results suggest benefits to employing more sophisticated econometric models than the sample covariance matrix, and that mean-variance strategies often outperform the naive portfolio across multiple datasets and assessment criteria.
Recommendations
- K-fold cross validation performance comparisons of six naive portfolio selection rules: how naive can you be and still have successful out-of-sample portfolio performance?
- An optimal combination of risk-return and naive hedging
- Naive versus optimal diversification: tail risk and performance
- An out-of-sample evaluation of dynamic portfolio strategies
- Note—Naive Diversification and Portfolio Risk—A Note
Cites work
- A generalized approach to portfolio optimization: improving performance by constraining portfolio norms
- A well-conditioned estimator for large-dimensional covariance matrices
- Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models
- On the estimation of dynamic conditional correlation models
- Realized Volatility
- Sparse Bayesian time-varying covariance estimation in many dimensions
- Statistical analysis of cointegration vectors
This page was built for publication: Can volatility solve the naive portfolio puzzle?
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6089392)
