Estimation of the global minimum variance portfolio in high dimensions

DOI10.1016/J.EJOR.2017.09.028MaRDI QIDQ90168zbMATH OpenOpenAlexFDO

Authors Taras Bodnar, Nestor Parolya, Taras Bodnar, Nestor Parolya, Wolfgang Schmid

Publication date April 2018

Published in European Journal of Operational Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1406.0437

zbMATH Keywords

covariance matrix estimationfinanceglobal minimum variance portfoliolarge-dimensional asymptoticsrandom matrix theory

Mathematics Subject Classification ID

Estimation in multivariate analysis (62H12) Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10)

Abstract: We estimate the global minimum variance (GMV) portfolio in the high-dimensional case using results from random matrix theory. This approach leads to a shrinkage-type estimator which is distribution-free and it is optimal in the sense of minimizing the out-of-sample variance. Its asymptotic properties are investigated assuming that the number of assets $p$ depends on the sample size $n$ such that $fracpnightarrowcin(0,+infty)$ as $n$ tends to infinity. The results are obtained under weak assumptions imposed on the distribution of the asset returns, namely it is only required the fourth moments existence. Furthermore, we make no assumption on the upper bound of the spectrum of the covariance matrix. As a result, the theoretical findings are also valid if the dependencies between the asset returns are described by a factor model which appears to be very popular in financial literature nowadays. This is also well-documented in a numerical study where the small- and large-sample behavior of the derived estimator are compared with existing estimators of the GMV portfolio. The resulting estimator shows significant improvements and it turns out to be robust to the deviations from normality.

Recommendations

• Statistical inference for high-dimensional global minimum variance portfolios
• Minimum variance portfolio estimation from high-dimensional and high-frequency perspective
• Bayesian estimation of the global minimum variance portfolio
• High dimensional minimum variance portfolio estimation under statistical factor models
• Tests for the Weights of the Global Minimum Variance Portfolio in a High-Dimensional Setting
• High-dimensional minimum variance portfolio estimation based on high-frequency data
• Linear statistical inference for global and local minimum variance portfolios
• A risk perspective of estimating portfolio weights of the global minimum-variance portfolio
• Global minimum variance portfolio optimisation under some model risk: a robust regression-based approach
• Dominating estimators for minimum-variance portfolios

Cites work

• scientific article; zbMATH DE number 3122730 (Why is no real title available?)
• scientific article; zbMATH DE number 5278585 (Why is no real title available?)
• A closed-form solution of the multi-period portfolio choice problem for a quadratic utility function
• A generalized approach to portfolio optimization: improving performance by constraining portfolio norms
• A test for the weights of the global minimum variance portfolio in an elliptical model
• Asset allocation with correlation: a composite trade-off
• Asymptotics in statistics. Some basic concepts.
• Bayesian estimation of the global minimum variance portfolio
• DISTRIBUTION OF EIGENVALUES FOR SOME SETS OF RANDOM MATRICES
• Distributional properties of portfolio weights
• Dominating estimators for minimum-variance portfolios
• Empirical properties of asset returns: stylized facts and statistical issues
• Gaussian fluctuations for sample covariance matrices with dependent data
• Global minimum variance portfolio optimisation under some model risk: a robust regression-based approach
• High dimensional covariance matrix estimation using a factor model
• High-dimensionality effects in the Markowitz problem and other quadratic programs with linear constraints: risk underestimation
• Inferential Theory for Factor Models of Large Dimensions
• Large covariance estimation by thresholding principal orthogonal complements. With discussion and authors' reply
• Limiting spectral distribution for large sample covariance matrices with m-dependent elements
• Matrix Analysis
• Mean-variance approximations to expected utility
• Mean-variance portfolio selection in presence of infrequently traded stocks
• More possessions, more worry
• Nonlinear shrinkage estimation of large-dimensional covariance matrices
• On the equivalence of quadratic optimization problems commonly used in portfolio theory
• On the exact solution of the multi-period portfolio choice problem for an exponential utility under return predictability
• On the strong convergence of the optimal linear shrinkage estimator for large dimensional covariance matrix
• Scenario-based portfolio selection of investment projects with incomplete probability and utility information
• Spectral analysis of large dimensional random matrices
• Spectral convergence for a general class of random matrices
• Statistical Analysis of Financial Data in S-Plus
• Strong convergence of the empirical distribution of eigenvalues of large dimensional random matrices
• The benefits of differential variance-based constraints in portfolio optimization
• The limiting spectral distribution for large sample covariance matrices with unbounded m-dependent entries
• The logarithmic law of sample covariance matrices near singularity
• The opportunity cost of mean-variance choice under estimation risk
• Understanding dynamic mean variance asset allocation
• Vast portfolio selection with gross-exposure constraints

Cited in

(47)

• Bayesian inference for the tangent portfolio
• Sparse graphical modelling for global minimum variance portfolio
• High-dimensional correlation matrix estimation for general continuous data with Bagging technique
• Unrestricted maximum likelihood estimation of multivariate realized volatility models
• Statistical inference for high-dimensional global minimum variance portfolios
• Portfolio optimisation via strategy-specific eigenvector shrinkage
• Minimum variance portfolio estimation from high-dimensional and high-frequency perspective
• A risk perspective of estimating portfolio weights of the global minimum-variance portfolio
• Asset allocation with factor-based covariance matrices
• Cross validation based transfer learning for cross-sectional non-linear shrinkage: a data-driven approach in portfolio optimization
• High-dimensional minimum variance portfolio estimation based on high-frequency data
• A test on the location of the tangency portfolio on the set of feasible portfolios
• High dimensional minimum variance portfolio estimation under statistical factor models
• Shrinkage estimation of mean-variance portfolio
• Nonlinear shrinkage test on a large-dimensional covariance matrix
• Are minimum variance portfolios in multi-factor models long in low-beta assets?
• Sampling distributions of optimal portfolio weights and characteristics in small and large dimensions
• Sample and realized minimum variance portfolios: estimation, statistical inference, and tests
• Portfolio selection: shrinking the time-varying inverse conditional covariance matrix
• How does price (in)efficiency influence cryptocurrency portfolios performance? The role of multifractality
• Logarithmic law of large random correlation matrices
• A Krylov subspace approach to large portfolio optimization
• Reviving pseudo-inverses: asymptotic properties of large dimensional Moore-Penrose and ridge-type inverses with applications
• Precision matrix estimation for the global minimum variance portfolio
• Enhancing index-tracking performance: leveraging characteristic-based factor models for reduced estimation errors
• HDShOP
• On the realized risk of high-dimensional Markowitz portfolios
• Singular Conditional Autoregressive Wishart Model for Realized Covariance Matrices
• On the Combination of Naive and Mean-Variance Portfolio Strategies
• Quantile-based optimal portfolio selection
• Bayesian mean-variance analysis: optimal portfolio selection under parameter uncertainty
• A test on mean-variance efficiency of the tangency portfolio in high-dimensional setting
• Recent advances in shrinkage-based high-dimensional inference
• Boundaries of the risk aversion coefficient: should we invest in the global minimum variance portfolio?
• Portfolio optimization for sustainable investments
• Global minimum variance portfolio optimisation under some model risk: a robust regression-based approach
• Making distributionally robust portfolios feasible in high dimension
• Fifty years at the interface between financial modeling and operations research
• Higher-order nonlinear shrinkage estimator of large-dimensional precision matrix
• An exact test on structural changes in the weights of the global minimum variance portfolio
• A Bayesian graphical approach for large-scale portfolio management with fewer historical data
• Large-scale minimum variance portfolio allocation using double regularization
• Dominating estimators for minimum-variance portfolios
• Improving portfolios global performance using a cleaned and robust covariance matrix estimate
• Multiperiod Dynamic Portfolio Choice: When High Dimensionality Meets Return Predictability
• The distribution of sample mean-variance portfolio weights
• Optimal Shrinkage-Based Portfolio Selection in High Dimensions

Describes a project that uses

Uses Software

• MASS (R)
• R

This page was built for publication: Estimation of the global minimum variance portfolio in high dimensions

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q90168)