Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/44946
Authors: 
Frahm, Gabriel
Memmel, Christoph
Year of Publication: 
2008
Series/Report no.: 
Discussion papers in statistics and econometrics 2/08
Abstract: 
In this paper, we derive 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. 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 as well as their large-sample properties for fixed d but n → ∞ as well as n/d → ∞ but n/d → q ≤ ∞ are investigated. Furthermore, we present a small-sample test for the question of whether it is better to completely ignore time series information in favor of naive diversification.
Subjects: 
Covariance matrix estimation
Global minimum variance portfolio
James-Stein estimation
Naive diversification
Shrinkage estimator
JEL: 
C13
G11
Document Type: 
Working Paper

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