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Stepwise expanding the frontier one asset at a time

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  • Chiu, Wan-Yi

Abstract

Ukhov (2006) characterizes some rules to compare the global minimum variance portfolio (GMVP) for expanding the frontier one asset at a time. Based on a regression hedge, this paper tests the GMVP’s return and weights for Ukhov’s classification. The illustration using DOW30 assets produces weak t-statistics of the GMVP returns across frontiers. In contrast, the evidence shows significant t-statistics when examining the portfolio weights. As an application of the weight t-statistics, we present a stepwise approach to constructing the frontier. Our stepwise GMVP’s standard deviation also outperforms the simulated results for all the portfolio sizes.

Suggested Citation

  • Chiu, Wan-Yi, 2022. "Stepwise expanding the frontier one asset at a time," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s154461232100324x
    DOI: 10.1016/j.frl.2021.102285
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    References listed on IDEAS

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