Dominating estimators for the global minimum variance portfolio

Gabriel Frahm and Christoph Memmel

No 2009,01, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: 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

Keywords: Covariance matrix estimation; global minimum variance portfolio; James-Stein estimation; naive diversification; shrinkage estimator (search for similar items in EconPapers)
JEL-codes: C13 G11 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ecm and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Dominating estimators for the global minimum variance portfolio (2008)
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