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We introduce a novel covariance estimator for portfolio selection that adapts to the non-stationary or persistent heteroskedastic environments of financial time series by employing exponentially weighted averages and nonlinearly shrinking the sample eigenvalues through cross-validation.
Portfolio selection
Markowitz, H. (1952) · 1952
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DeMiguel, V., Garlappi, L., and Uppal, R. (2009) · 1953
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Inadmissibility of the usual estimator for the mean of a multivariate normal distribution
Stein, C. (1956) · 1956
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Mandelbrot, B. B. (1963) · 1963
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Sharpe, W. F. (1963) · 1963
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Stein, C. (1975) · 1975
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Haff, L. (1980) · 1980
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Chamberlain, G. and Rothschild, M. (1983) · 1983
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Bollerslev, T. (1986) · 1986
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Stein, C. (1986) · 1986
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Haugen, R. A. and Baker, N. L. (1991) · 1991
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Fama, E. F. and French, K. R. (1992) · 1992
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Sheena, Y. and Takemura, A. (1992) · 1992
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The effect of errors in means, variances, and covariances on optimal portfolio choice
Chopra, V. K. and Ziemba, W. T. (1993) · 1993
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RiskMetrics - technical document
J.P. Morgan/Reuters (1996) · 1996
Robust performances hypothesis testing with the variance
Ledoit, O. and Wolf, M. (2011) · 2011
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Nonlinear shrinkage estimation of large-dimensional covariance matrices
Ledoit, O. and Wolf, M. (2012) · 2012
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Design-free estimation of variance matrices
Abadir, K. M., Distaso, W., and Žikeš, F. (2014) · 2014
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Restoring value to minimum variance
Goldberg, L. R., Leshem, R., and Geddes, P. (2014) · 2014
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Spectrum estimation: A unified framework for covariance matrix estimation and PCA in large dimensions
Ledoit, O. and Wolf, M. (2015) · 2015
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Cross-validation based nonlinear shrinkage
Bartz, D. (2016) · 2016
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Engle, R. (2002) · 2002
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Jagannathan, R. and Ma, T. (2003) · 2003
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Engle, R. and Colacito, R. (2006) · 2006
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Zumbach, G. (2007) · 2006
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Regularized estimation of large covariance matrices
Bickel, P. J. and Levina, E. (2008) · 2008
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Bun, J., Bouchaud, J.-P., and Potters, M. (2017) · 2017
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Nonlinear shrinkage of the covariance matrix for portfolio selection: Markowitz meets Goldilocks
Ledoit, O. and Wolf, M. (2017) · 2017
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Large dynamic covariance matrices
Engle, R. F., Ledoit, O., and Wolf, M. (2019) · 2019
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Ledoit, O. and Wolf, M. (2020) · 2020
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