Estimating correlation and covariance matrices by weighting of market similarity

Preprint OPEN
Michael C. M\"unnix; Rudi Sch\"afer; Oliver Grothe; (2010)
  • Subject: Quantitative Finance - Portfolio Management | Quantitative Finance - Statistical Finance

We discuss a weighted estimation of correlation and covariance matrices from historical financial data. To this end, we introduce a weighting scheme that accounts for similarity of previous market conditions to the present one. The resulting estimators are less biased a... View more
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