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BAYESIAN INFERENCE FOR THE TANGENT PORTFOLIO
Stockholm University, Faculty of Science, Department of Mathematics.ORCID iD: 0000-0001-7855-8221
2018 (English)In: International Journal of Theoretical and Applied Finance, ISSN 0219-0249, Vol. 21, no 8, article id 1850054Article in journal (Refereed) Published
Abstract [en]

In this paper, we consider the estimation of the weights of tangent portfolios from the Bayesian point of view assuming normal conditional distributions of the logarithmic returns. For diffuse and conjugate priors for the mean vector and the covariance matrix, we derive stochastic representations for the posterior distributions of the weights of tangent portfolio and their linear combinations. Separately, we provide the mean and variance of the posterior distributions, which are of key importance for portfolio selection. The analytic results are evaluated within a simulation study, where the precision of coverage intervals is assessed.

Place, publisher, year, edition, pages
2018. Vol. 21, no 8, article id 1850054
Keywords [en]
Asset allocation, tangent portfolio, Bayesian analysis, diffuse and conjugate priors, stochastic representation
National Category
Probability Theory and Statistics Economics
Identifiers
URN: urn:nbn:se:su:diva-165225DOI: 10.1142/S0219024918500541ISI: 000455592700006OAI: oai:DiVA.org:su-165225DiVA, id: diva2:1281650
Available from: 2019-01-22 Created: 2019-01-22 Last updated: 2019-02-04Bibliographically approved

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