The subject here is construction of the covariance matrix for portfolio optimization. In terms of the ex post standard deviation of the global minimum-variance portfolio, there is no statistically significant gain in using more sophisticated shrinkage estimators rather than simpler portfolios of estimators. This finding holds whether or not the investor imposes short sale constraints to prevent portfolio weights from being negative. TOPICS:Portfolio construction, statistical methods, risk management
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Disatnik et al. (2007) studied this question.
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