Multiple tests for the performance of different investment strategies

Gabriel Frahm (), Tobias Wickern () and Christof Wiechers ()

AStA Advances in Statistical Analysis, 2012, vol. 96, issue 3, 343-383

Abstract: In the context of modern portfolio theory, we compare the out-of-sample performance of eight investment strategies which are based on statistical methods with the out-of-sample performance of a family of trivial strategies. A wide range of approaches is considered in this work, including the traditional sample-based approach, several minimum-variance techniques, a shrinkage, and a minimax approach. In contrast to similar studies in the literature, we also consider short-selling constraints and a risk-free asset. We provide a way to extend the concept of minimum-variance strategies in the context of short-selling constraints. A main drawback of most empirical studies on that topic is the use of simple testing procedures which do not account for the effects of multiple testing. For that reason we conduct several hypothesis tests which are proposed in the multiple-testing literature. We test whether it is possible to beat a trivial strategy by at least one of the non-trivial strategies, whether the trivial strategy is better than every non-trivial strategy, and which of the non-trivial strategies is significantly outperformed by naive diversification. The empirical part of our study is conducted using US stock returns from the last four decades, obtained via the CRSP database. Copyright Springer-Verlag 2012

Keywords: Asset allocation; Certainty equivalent; Multiple hypothesis tests; Naive diversification; Out-of-sample performance; Portfolio optimization; Sharpe ratio (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10182-011-0166-1 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:alstar:v:96:y:2012:i:3:p:343-383

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10182/PS2

DOI: 10.1007/s10182-011-0166-1

Access Statistics for this article

AStA Advances in Statistical Analysis is currently edited by Göran Kauermann and Yarema Okhrin

More articles in AStA Advances in Statistical Analysis from Springer, German Statistical Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().