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Bayesian estimation of the efficient frontier
Stockholm University, Faculty of Science, Department of Mathematics.
Number of Authors: 42019 (English)In: Scandinavian Journal of Statistics, ISSN 0303-6898, E-ISSN 1467-9469, Vol. 46, no 3, p. 802-830Article in journal (Refereed) Published
Abstract [en]

In this paper, we consider the estimation of the three determining parameters of the efficient frontier, the expected return, and the variance of the global minimum variance portfolio and the slope parameter, from a Bayesian perspective. Their posterior distribution is derived by assigning the diffuse and the conjugate priors to the mean vector and the covariance matrix of the asset returns and is presented in terms of a stochastic representation. Furthermore, Bayesian estimates together with the standard uncertainties for all three parameters are provided, and their asymptotic distributions are established. All obtained findings are applied to real data, consisting of the returns on assets included into the S&P 500. The empirical properties of the efficient frontier are then examined in detail.

Place, publisher, year, edition, pages
2019. Vol. 46, no 3, p. 802-830
Keywords [en]
Bayesian estimation, credible set, efficient frontier, parameter uncertainty, stochastic presentation
National Category
Mathematics
Identifiers
URN: urn:nbn:se:su:diva-173099DOI: 10.1111/sjos.12372ISI: 000479058100006OAI: oai:DiVA.org:su-173099DiVA, id: diva2:1357732
Available from: 2019-10-04 Created: 2019-10-04 Last updated: 2019-10-04Bibliographically approved

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