Stepwise expanding the frontier one asset at a time

Wan-Yi Chiu

Finance Research Letters, 2022, vol. 46, issue PA

Abstract: Ukhov (2006) characterizes some rules to compare the global minimum variance portfolio (GMVP) for expanding the frontier one asset at a time. Based on a regression hedge, this paper tests the GMVP’s return and weights for Ukhov’s classification. The illustration using DOW30 assets produces weak t-statistics of the GMVP returns across frontiers. In contrast, the evidence shows significant t-statistics when examining the portfolio weights. As an application of the weight t-statistics, we present a stepwise approach to constructing the frontier. Our stepwise GMVP’s standard deviation also outperforms the simulated results for all the portfolio sizes.

Keywords: Expanding frontier; Stepwise method; Global minimum variance portfolio; Regression hedge; Portfolio weight test (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pa:s154461232100324x

DOI: 10.1016/j.frl.2021.102285

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