Resource title

The effect of estimation in high-dimensional portfolios

Resource image

image for OpenScout resource :: The effect of estimation in high-dimensional portfolios

Resource description

We study the effect of estimated model parameters in investment strategies on expected log-utility of terminal wealth. The market consists of a riskless bond and a potentially vast number of risky stocks modeled as geometric Brownian motions. The well-known optimal Merton strategy depends on unknown parameters and thus cannot be used in practice. We consider the expected utility of several estimated strategies when the number of risky assets gets large. We suggest strategies which are less affected by estimation errors and demonstrate their performance in a real data example. Strategies in which the investment proportions satisfy an inline image-constraint are less affected by estimation effects.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

Resource resource URL

http://eprints.lse.ac.uk/37618/

Resource license