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Diversified minimum-variance portfolios

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  • Guillaume Coqueret

Abstract

We build on a one parameter family of weighting schemes arising from $$L^2$$ L 2 -constrained portfolio optimization problems. The parameter allows to fine tune the trade-off between the volatility and the diversification of the portfolio. We propose two criteria in order to determine two unique portfolios: the first criterion requires that no weights be negative while the second one imposes a target diversification which is median between full concentration and full diversification. Both portfolios are empirically compared to classical benchmarks. The first one behaves very much like other popular Long-Only weighting schemes while the second displays a more aggressive profile, while generating moderate turnover. We also discuss implementation issues, as well as estimation related problems. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Guillaume Coqueret, 2015. "Diversified minimum-variance portfolios," Annals of Finance, Springer, vol. 11(2), pages 221-241, May.
    • Handle: RePEc:kap:annfin:v:11:y:2015:i:2:p:221-241
    DOI: 10.1007/s10436-014-0253-x
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    Citations

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    Cited by:

    1. Guillaume Coqueret, 2017. "Empirical properties of a heterogeneous agent model in large dimensions," Post-Print hal-02312186, HAL.
    2. Francisco Fernández-Navarro & Luisa Martínez-Nieto & Mariano Carbonero-Ruz & Teresa Montero-Romero, 2021. "Mean Squared Variance Portfolio: A Mixed-Integer Linear Programming Formulation," Mathematics, MDPI, vol. 9(3), pages 1-13, January.
    3. Ammann, Manuel & Coqueret, Guillaume & Schade, Jan-Philip, 2016. "Characteristics-based portfolio choice with leverage constraints," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 23-37.
    4. Bessler, Wolfgang & Taushanov, Georgi & Wolff, Dominik, 2024. "Factor investing and asset allocation strategies: a comparison of factor versus sector optimization," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 149873, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    5. Guillaume Coqueret, 2017. "Empirical properties of a heterogeneous agent model in large dimensions," Post-Print hal-02000726, HAL.
    6. Gilles Boevi Koumou, 2020. "Diversification and portfolio theory: a review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 267-312, September.
    7. Coqueret, Guillaume, 2017. "Empirical properties of a heterogeneous agent model in large dimensions," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 180-201.
    8. Guillaume Chevalier & Guillaume Coqueret & Thomas Raffinot, 2022. "Supervised portfolios," Post-Print hal-04144588, HAL.
    9. Bessler, Wolfgang & Taushanov, Georgi & Wolff, Dominik, 2021. "Optimal asset allocation strategies for international equity portfolios: A comparison of country versus industry optimization," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    10. Vigo Pereira, Caio, 2021. "Portfolio efficiency with high-dimensional data as conditioning information," International Review of Financial Analysis, Elsevier, vol. 77(C).
    11. Wolfgang Bessler & Georgi Taushanov & Dominik Wolff, 2021. "Factor investing and asset allocation strategies: a comparison of factor versus sector optimization," Journal of Asset Management, Palgrave Macmillan, vol. 22(6), pages 488-506, October.
    12. Dian Zhu & Andrew J. Heunis, 2017. "Quadratic minimization with portfolio and intertemporal wealth constraints," Annals of Finance, Springer, vol. 13(3), pages 299-340, August.
    13. Francesco Cesarone & Justo Puerto, 2024. "New approximate stochastic dominance approaches for Enhanced Indexation models," Papers 2401.12669, arXiv.org.
    14. Guillaume Coqueret, 2016. "Empirical properties of a heterogeneous agent model in large dimensions," Post-Print hal-02088097, HAL.
    15. Francesco Cesarone & Rosella Giacometti & Manuel Luis Martino & Fabio Tardella, 2023. "A return-diversification approach to portfolio selection," Papers 2312.09707, arXiv.org.

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    More about this item

    Keywords

    Portfolio optimization; Minimum variance; Diversification; G11; C61;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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