Alex Shkolnik, Alec Kercheval, Hubeyb Gurdogan, Lisa R. Goldberg, Haim Bar
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引用次数: 0
Abstract
In 1952, Harry Markowitz formulated portfolio selection as a trade-off between expected, or mean, return and variance. This launched a massive research effort devoted to finding suitable inputs to mean-variance optimization. The estimation problem is high dimensional and a factor model is at the core of many attempts. A factor model can reduce the number of parameters that need to be estimated to a manageable size, but these parameters may incorporate substantial, hidden estimation error. Recent analysis elucidates the nature of this error, identifies a mechanism by which it can corrupt optimization and provides a method for its mitigation. We explore this analysis here by illustrating how to improve the volatility ratio of large optimized portfolios, leading to superior portfolio selection.\(^{*}\)
期刊介绍：
The Annals of Operations Research publishes peer-reviewed original articles dealing with key aspects of operations research, including theory, practice, and computation. The journal publishes full-length research articles, short notes, expositions and surveys, reports on computational studies, and case studies that present new and innovative practical applications.
In addition to regular issues, the journal publishes periodic special volumes that focus on defined fields of operations research, ranging from the highly theoretical to the algorithmic and the applied. These volumes have one or more Guest Editors who are responsible for collecting the papers and overseeing the refereeing process.
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