Article (Journal/Review)
On portfolio optimization: imposing the right constraints
Fecha
2013-04Registro en:
0268-3946 / 1758-7778
10.1016/j.jbankfin.2012.11.020
000315538400009
Guettler, Andre/0000-0003-2743-5250
Autor
Behr, Patrick Gottfried
Guettler, Andre
Miebs, Felix
Institución
Resumen
We reassess the recent finding that no established portfolio strategy outperforms the naively diversified portfolio, 1/N, by developing a constrained minimum-variance portfolio strategy on a shrinkage theory based framework. Our results show that our constrained minimum-variance portfolio yields significantly lower out-of-sample variances than many established minimum-variance portfolio strategies. Further, we observe that our portfolio strategy achieves higher Sharpe ratios than 1/N, amounting to an average Sharpe ratio increase of 32.5% across our six empirical datasets. We find that our constrained minimum-variance strategy is the only strategy that achieves the goal of improving the Sharpe ratio of 1/N consistently and significantly. At the same time, our developed portfolio strategy achieves a comparatively low turnover and exhibits no excessive short interest. (C) 2012 Elsevier B.V. All rights reserved.