In the context of modern portfolio theory, we compare the out-of-sample performance of 8 investment strategies which are based on statistical methods with the out-of-sample performance of a family of trivial strategies. A wide range of approaches is considered in this work, including the...

In the present work, I derive the risk functions of 5 standard estimators for expected asset returns which are frequently advocated in the literature, viz the sample mean vector, the James-Stein and Bayes-Stein estimator, the minimum-variance estimator, and the CAPM estimator. I resolve the...

A portfolio-resampling procedure invented by Richard and Robert Michaud is the subject of a highly controversial discussion and big scientific dispute. It has been evaluated in many empirical studies and Monte Carlo experiments. Apart from the contradictory findings, the Michaud approach still...

In this paper, we derive two shrinkage estimators for the global minimum variance portfolio that dominate the traditional estimator with respect to the out-of-sample variance of the portfolio return. The presented results hold for any number of observations n ≥ d + 2 and number of assets d ≥...

We develop a general approach to portfolio optimization taking account of estimation risk and stylized facts of empirical finance. This is done within a Bayesian framework. The approximation of the posterior distribution of the unknown model parameters is based on a parallel tempering algorithm....

We introduce a measure of diversification for portfolios comprising d risky assets. This measure relates the smallest possible return variance among these d assets to the overall portfolio return variance, yielding the portion of non-diversifiable risk. In the context of normally distributed...