Diversified minimum-variance portfolios

Guillaume Coqueret ()
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Guillaume Coqueret: EDHEC - EDHEC Business School, MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier

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Abstract: We build on a one parameter family of weighting schemes arising from L2-constrained portfolio optimization problems. The parameter allows to fine tune the trade-off between the volatility and the diversification of the portfolio. We propose two criteria in order to determine two unique portfolios: the first criterion requires that no weights be negative while the second one imposes a target diversification which is median between full concentration and full diversification. Both portfolios are empirically compared to classical benchmarks. The first one behaves very much like other popular Long-Only weighting schemes while the second displays a more aggressive profile, while generating moderate turnover. We also discuss implementation issues, as well as estimation related problems.

Date: 2015-05
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Citations: View citations in EconPapers (13)

Published in Annals of Finance, 2015, 11 (2), pp.221-241. ⟨10.1007/s10436-014-0253-x⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02009587

DOI: 10.1007/s10436-014-0253-x

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