Item Type |
Monograph
(Working Paper)
|
Abstract |
We propose an averaging rule that combines established minimum-variance strategies to minimize the expected out-of-sample variance. Our rule overcomes the problem of selecting the “best” strategy ex-ante and diversifies remaining estimation errors of the single strategies included in the averaging. Extensive simulations show that the contributions of estimation errors to the out-of-sample variances are uncorrelated between the considered strategies. This implies that averaging over multiple strategies o˙ers sizable diversification benefits. Our rule leverages these benefits and compares favorably to eleven strategies in terms of out-of-sample variance on both simulated and empirical data sets. The Sharpe ratio is across all data sets at least 25% higher than for the 1/N portfolio. |
Authors |
Füss, Roland; Koeppel, Christian & Miebs, Felix |
Language |
English |
Keywords |
Averaging; diversification; estimation error; portfolio optimization; shrinkage |
Subjects |
economics finance |
HSG Classification |
contribution to scientific community |
HSG Profile Area |
SOF - System-wide Risk in the Financial System |
Date |
8 February 2021 |
Publisher |
SoF-HSG |
Place of Publication |
St.Gallen |
Series Name |
School of Finance Working Paper Series |
Volume |
2021/05 |
Number |
05 |
Page Range |
1-69 |
Number of Pages |
69 |
Contact Email Address |
Roland.Fuess@unisg.ch |
Depositing User |
Carolin Hitz
|
Date Deposited |
08 Feb 2021 14:32 |
Last Modified |
08 Feb 2021 14:32 |
URI: |
https://www.alexandria.unisg.ch/publications/262294 |