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High-dimensional minimum variance portfolio estimation based on high-frequency data

Author

Listed:
  • Cai, T. Tony
  • Hu, Jianchang
  • Li, Yingying
  • Zheng, Xinghua

Abstract

This paper studies the estimation of high-dimensional minimum variance portfolio (MVP) based on the high frequency returns which can exhibit heteroscedasticity and possibly be contaminated by microstructure noise. Under certain sparsity assumptions on the precision matrix, we propose estimators of the MVP and prove that our portfolios asymptotically achieve the minimum variance in a sharp sense. In addition, we introduce consistent estimators of the minimum variance, which provide reference targets. Simulation and empirical studies demonstrate the favorable performance of the proposed portfolios.

Suggested Citation

  • Cai, T. Tony & Hu, Jianchang & Li, Yingying & Zheng, Xinghua, 2020. "High-dimensional minimum variance portfolio estimation based on high-frequency data," Journal of Econometrics, Elsevier, vol. 214(2), pages 482-494.
    • Handle: RePEc:eee:econom:v:214:y:2020:i:2:p:482-494
    DOI: 10.1016/j.jeconom.2019.04.039
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    References listed on IDEAS

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    More about this item

    Keywords

    Minimum variance portfolio; High dimension; High frequency; CLIME estimator; Precision matrix;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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