A Jackknife-Type Estimator for Portfolio Revision

Item Type Journal paper
Abstract

This paper proposes a novel approach to portfolio revision. The current literature
on portfolio optimization uses a somewhat naïve approach, where portfolio weights are always completely revised after a predefined fixed period. However, one shortcoming of this procedure is that it ignores parameter uncertainty in the estimated portfolio weights, as well as the biasedness of the in-sample portfolio mean and variance as estimates of the expected portfolio return and out-of-sample variance. To rectify this problem, we propose a Jackknife procedure to determine the optimal revision intensity, i.e. the percent of wealth that should be shifted to the new, in-sample optimal portfolio. We find that our approach leads to highly stable portfolio
allocations over time, and can significantly reduce the turnover of several well
established portfolio strategies. Moreover, the observed turnover reductions lead
to statistically and economically significant performance gains in the presence of
transaction costs.

Authors Füss, Roland; Miebs, Felix & Trübenbach, Fabian
Journal or Publication Title Journal of Banking and Finance
Language English
Keywords Portfolio optimization; optimal portfolio revision; out-of-sample performance evaluation; Jackknife estimator; transaction costs
Subjects business studies
Institute/School SEW - Swiss Institute for Empirical Economic Research
HSG Classification contribution to scientific community
Refereed Yes
Date June 2014
Publisher Elsevier North-Holland
Place of Publication Amsterdam
Volume 43
Number 6
Page Range 14-28
Number of Pages 15
ISSN 0378-4266
ISSN-Digital 1872-6372
Publisher DOI 10.1016/j.jbankfin.2014.01.029
Depositing User Prof. Dr. Roland Füss
Date Deposited 30 Sep 2013 16:44
Last Modified 23 Aug 2016 11:17
URI: https://www.alexandria.unisg.ch/publications/225988

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Citation

Füss, Roland; Miebs, Felix & Trübenbach, Fabian (2014) A Jackknife-Type Estimator for Portfolio Revision. Journal of Banking and Finance, 43 (6). 14-28. ISSN 0378-4266

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https://www.alexandria.unisg.ch/id/eprint/225988
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