The distribution of the sample minimum-variance frontier
Kan, R. & Smith, D. R. (2008) The distribution of the sample minimum-variance frontier. Management Science, 54(7), pp. 1364-1380.
In this paper, we present a finite sample analysis of the sample minimum-variance frontier under the assumption that the returns are independent and multivariate normally distributed. We show that the sample minimum-variance frontier is a highly biased estimator of the population frontier, and we propose an improved estimator of the population frontier. In addition, we provide the exact distribution of the out-of-sample mean and variance of sample minimum-variance portfolios. This allows us to understand the impact of estimation error on the performance of in-sample optimal portfolios.
Key Words: minimum-variance frontier; efficiency set constants; finite sample distribution
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|Item Type:||Journal Article|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School|
Current > Schools > School of Economics & Finance
|Copyright Owner:||Institute for Operations Research and the Management Sciences (INFORMS)|
|Deposited On:||23 Feb 2010 15:49|
|Last Modified:||29 Feb 2012 23:56|
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