Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/45355 
Year of Publication: 
2010
Series/Report no.: 
Discussion Papers in Statistics and Econometrics No. 5/10
Publisher: 
University of Cologne, Seminar of Economic and Social Statistics, Cologne
Abstract: 
In the context of modern portfolio theory, we compare the out-of-sample performance of 8 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 shortselling 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 are significantly outperformed by naive diversification. In our empirical study we use monthly US stock returns from the CRSP database, covering the last 4 decades.
Subjects: 
Asset allocation
Certainty equivalent
Investment strategy
Markowitz
Multiple tests
Naive diversification
Out-of-sample performance
Portfolio optimization
Sharpe ratio
JEL: 
C12
G11
Document Type: 
Working Paper

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