Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171920
Authors: 
Paolella, Marc S.
Year of Publication: 
2017
Citation: 
[Journal:] Econometrics [ISSN:] 2225-1146 [Volume:] 5 [Year:] 2017 [Issue:] 2 [Pages:] 1-33
Abstract: 
The univariate collapsing method (UCM) for portfolio optimization is based on obtaining the predictive mean and a risk measure such as variance or expected shortfall of the univariate pseudo-return series generated from a given set of portfolio weights and multivariate set of assets under interest and, via simulation or optimization, repeating this process until the desired portfolio weight vector is obtained. The UCM is well-known conceptually, straightforward to implement, and possesses several advantages over use of multivariate models, but, among other things, has been criticized for being too slow. As such, it does not play prominently in asset allocation and receives little attention in the academic literature. This paper proposes use of fast model estimation methods combined with new heuristics for sampling, based on easily-determined characteristics of the data, to accelerate and optimize the simulation search. An extensive empirical analysis confirms the viability of the method.
Subjects: 
asset allocation
backtest-overfitting
non-ellipticity
JEL: 
C58
G11
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
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