Wednesday, 15:15 - 15:40 h, Room: H 3027


Alberto Martín-Utrera
Size matters: Calibrating shrinkage estimators for portfolio optimization

Coauthors: Victor Demiguel, Francisco J. Nogales


We provide a comprehensive study of shrinkage estimators for portfolio selection. We study both portfolios computed from shrinkage estimators of the moments of asset returns (including new shrinkage estimators of the mean and the inverse covariance matrix), as well as shrinkage portfolios obtained by shrinking the portfolio weights directly. We propose two calibration approaches to determine the shrinkage intensity: a parametric approach based on the assumption that returns are independent and identically distributed as a normal (that leads to closed-form expressions for the shrinkage intensity), and a nonparametric approach that makes no assumptions on the return distribution. We carry out extensive empirical tests across six real datasets.


Talk 1 of the invited session Wed.3.H 3027
"Management of portfolios and liabilities" [...]
Cluster 7
"Finance & economics" [...]


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