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annuncio seminario
Istituto Metodi Quantitativi - Università L. Bocconi
Viale Isonzo, 25 - 20135 Milano
Tel. 02-58365629 - Fax 02-58365630
SEMINARIO
COVARIANCE MATRIX ESTIMATION, FACTOR MODELS, PORTOFOLIO SELECTION, SHRINKAGE
Michael Wolf
Dept. of Economics and Business
Univ. Pompeu Fabra
and
Visiting Professor Univ.Bocconi
Giovedì, 14 marzo 2002 ore 16.00
Aula IMQ (stanza n. 137)
Abstract: This paper proposes to estimate the covariance matrix of stock
returns by an optimally weighted average of two existing estimators: the
sample covariance matrix and single-index covariance matrix. This method is
generally know as shrinkage, and it is standard in decision theory and in
empirical Bayesian statistics. Our shrinkage estimator can be seen as a way
to account for extra-market covariance without having to specify an
arbitrary multi-factor structure. For NYSE and AMEX stock returns from
1972to 1995, it can be used to select portfolios with significantly lower
out-of-sample variance than a set of existing estimators including
multi-factor models.