Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27684
Authors: 
Frahm, Gabriel
Memmel, Christoph
Year of Publication: 
2009
Series/Report no.: 
Discussion Paper Series 2: Banking and financial studies 2009,01
Abstract: 
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 are derived. 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 and also their large-sample properties for fixed d but n -> infinity as well as n,d -> infinity but n/d -> q <= infinity are investigated. Further, a small-sample test for the question whether it is better to completely ignore time series information in favor of naive diversification is presented.
Subjects: 
Covariance matrix estimation
global minimum variance portfolio
James-Stein estimation
naive diversification
shrinkage estimator
JEL: 
C13
G11
ISBN: 
978-3-86558-490-8
Document Type: 
Working Paper

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