Predicting the Global Minimum Variance Portfolio
Bibliographic Data
| ID | 19418386 |
|---|---|
| Authors | Laura Reh (0000-0002-8083-0535, University of Cologne, corresponding author), Fabian Krüger (0000-0002-5112-9037, Karlsruhe Institute of Technology), Roman Liesenfeld (0000-0001-6996-6215, University of Cologne) |
| Year | 2023 |
| Volume | 41 |
| Issue | 2 |
| Pages | 440-452 |
| Publication date | 2023-04-03 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Business and Economic Statistics (JOURNAL) |
| Journal identifiers | ISSN: 0735-0015 • E-ISSN: 1537-2707 |
| Publisher | Informa UK Limited (PUBLISHER • GB) |
| DOI | 10.1080/07350015.2022.2035226 |
| OpenAlex | W4210378752 |
| Language | EN |
| Citations received | 1 |
| References cited | 38 |
We propose a novel dynamic approach to forecast the weights of the global minimum variance portfolio (GMVP) for the conditional covariance matrix of asset returns. The GMVP weights are the population coefficients of a linear regression of a benchmark return on a vector of return differences. This representation enables us to derive a consistent loss function from which we can infer the GMVP weights without imposing any distributional assumptions on the returns. In order to capture time variation in the returns’ conditional covariance structure, we model the portfolio weights through a recursive least squares (RLS) scheme as well as by generalized autoregressive score (GAS) type dynamics. Sparse parameterizations and targeting toward the weights of the equally weighted portfolio ensure scalability with respect to the number of assets. We apply these models to daily stock returns, and find that they perform well compared to existing static and dynamic approaches in terms of both the expected loss and unconditional portfolio variance
Autoregressive conditional heteroskedasticity · Autoregressive model · Conditional expectation · Conditional variance · Covariance matrix · Econometrics · Economics · Heteroscedasticity · Portfolio · Portfolio optimization · Statistics · Complex Systems and Time Series Analysis · Financial Markets and Investment Strategies · Financial Risk and Volatility Modeling · Mathematics · Finance
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| Unique citing works | 1 |
|---|---|
| Citations per year | 1 |
| Citation span | 2025 - 2025 (1) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 1 |