Optimal Portfolios in Good Times and Bad

Autor:	George Chow, Kenneth Lowry, Eric Jacquier, Mark Kritzman
Rok vydání:	1999
Předmět:	Economics and Econometrics Estimation of covariance matrices Covariance function Market risk Scatter matrix Covariance matrix Accounting Economics Econometrics Rational quadratic covariance function Covariance Portfolio optimization Finance
Zdroj:	Financial Analysts Journal. 55:65-73
ISSN:	1938-3312 0015-198X
DOI:	10.2469/faj.v55.n3.2273
Popis:	Recent experience with emerging market investments and hedge funds has highlighted the fact that risk parameters are unstable. To address this problem, we introduce a procedure for identifying multivariate outliers and use the outliers to estimate a new covariance matrix. We suggest that a covariance matrix estimated from outliers characterizes a portfolio's riskiness during market turbulence better than a full-sample covariance matrix. We also introduce a procedure for blending an inside-sample covariance matrix with one from an outlier sample. This procedure enables one to express views about the likelihood of each risk regime and to differentiate one's aversion to them. Our framework collapses to the Markowitz mean–variance model if (1) we set the probabilities of the inside and outlying covariance matrixes equal to their empirical frequencies, (2) we are equally averse to both risk regimes, and (3) we estimate the inside and outlying covariances around the full sample's mean.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::ea28dfecc71e5e173e328c9004f928e5 https://doi.org/10.2469/faj.v55.n3.2273 Zobrazit plný text záznamu Plný text ve formátu PDF