construct managed portfolios of a risk-free asset and market index. …

We propose a model to forecast very large realized covariance matrices of returns, applying it to the constituents of … the S&P 500 on a daily basis. To address the curse of dimensionality, we decompose the return covariance matrix using … standard firm-level factors (e.g., size, value and profitability) and use sectoral restrictions in the residual covariance …