Article ID: | iaor200968835 |
Country: | United States |
Volume: | 55 |
Issue: | 5 |
Start Page Number: | 798 |
End Page Number: | 812 |
Publication Date: | May 2009 |
Journal: | Management Science |
Authors: | DeMiguel Victor, Uppal Raman, Nogales Francisco J, Garlappi Lorenzo |
Keywords: | portfolio optimization |
We provide a general framework for finding portfolios that perform well out-of-sample in the presence of estimation error. This framework relies on solving the traditional minimum-variance problem but subject to the additional constraint that the norm of the portfolio-weight vector be smaller than a given threshold. We show that our framework nests as special cases the shrinkage approaches of Jagannathan and Ma (2003) and Ledoit and Wolf (2003, 2004) and the 1/