publication . Article . 2008

The Distribution of the Sample Minimum-Variance Frontier

Raymond Kan; Daniel R. Smith;
Open Access
  • Published: 01 Jan 2008 Journal: Management Science, volume 54, pages 1,364-1,380 (issn: 0025-1909, eissn: 1526-5501, Copyright policy)
  • Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
Abstract
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.
Subjects
free text keywords: minimum-variance frontier, efficiency set constants, finite sample distribution, Management Science and Operations Research, Strategy and Management, Population, education.field_of_study, education, Multivariate statistics, Econometrics, Minimum-variance unbiased estimator, Estimator, Mathematical optimization, Statistics, Mathematics, Frontier, Sample size determination, Exact distribution, Bias of an estimator
Related Organizations
Powered by OpenAIRE Research Graph
Any information missing or wrong?Report an Issue