CUSUM control charts for monitoring optimal portfolio weights

Vasyl Golosnoy, Sergiy Ragulin and Wolfgang Schmid

Computational Statistics & Data Analysis, 2011, vol. 55, issue 11, 2991-3009

Abstract: A portfolio investor requires statistical tools for the timely detection of changes in the optimal portfolio composition. Several multivariate cumulative sum (CUSUM) control charts are proposed for the purpose of monitoring optimal portfolio weights. The ability of the CUSUM schemes to detect important types of changes in the optimal portfolio weights is analyzed in an extensive Monte Carlo simulation study. The empirical application of control charts shows that the proposed methodology can provide a significant reduction of the portfolio volatility.

Keywords: CUSUM; charts; Minimum; variance; portfolio; Changes; in; the; covariance; matrix; Statistical; process; control (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (11)

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