On portfolio optimizationimposing the right constraints

Resumo

We reassess the recent finding that no established portfolio strategy outperforms the naively diversified portfolio, 1/N, by developing a constrained minimum-variance portfolio strategy on a shrinkage theory based framework. Our results show that our constrained minimum-variance portfolio yields significantly lower out-of-sample variances than many established minimum-variance portfolio strategies. Further, we observe that our portfolio strategy achieves higher Sharpe ratios than 1/N, amounting to an average Sharpe ratio increase of 32.5% across our six empirical datasets. We find that our constrained minimum-variance strategy is the only strategy that achieves the goal of improving the Sharpe ratio of 1/N consistently and significantly. At the same time, our developed portfolio strategy achieves a comparatively low turnover and exhibits no excessive short interest. (C) 2012 Elsevier B.V. All rights reserved.

Ficha do documento

Tipo

Artigo científico

Ano

2013

Instituição

Elsevier Science Bv

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.jbankfin.2012.11.020

Identificador

oai:repositorio.fgv.br:10438/23306

Palavras-chave

Portfolio optimizationShrinkageMean squared errorBootstrapFinançasAnálise de variância