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Constructing Bayesi...
Constructing Bayesian tangency portfolios under short-selling restrictions
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- Bodnar, Olha, senior lecturer, 1979- (author)
- Örebro universitet,Handelshögskolan vid Örebro Universitet,Unit of Statistics
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- Bodnar, Taras (author)
- Department of Mathematics, Stockholm University, Stockholm, Sweden
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- Niklasson, Vilhelm (author)
- Department of Mathematics, Stockholm University, Stockholm, Sweden
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(creator_code:org_t)
- Elsevier, 2024
- 2024
- English.
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In: Finance Research Letters. - : Elsevier. - 1544-6123 .- 1544-6131. ; 62
- Related links:
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https://doi.org/10.1...
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https://urn.kb.se/re...
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Abstract
Subject headings
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- We address the challenge of constructing tangency portfolios in the context of short-selling restrictions. Utilizing Bayesian techniques, we reparameterize the asset return model, enabling direct determination of priors for the tangency portfolio weights. This facilitates the integration of non-negative weight constraints into an investor's prior beliefs, resulting in a posterior distribution focused exclusively on non-negative values. Portfolio weight estimators are subsequently derived via the Markov Chain Monte Carlo (MCMC) methodology. Our novel Bayesian approach is empirically illustrated using the most significant stocks in the S&P 500 index. The method showcases promising results in terms of risk-adjusted returns and interpretability.
Subject headings
- NATURVETENSKAP -- Matematik -- Sannolikhetsteori och statistik (hsv//swe)
- NATURAL SCIENCES -- Mathematics -- Probability Theory and Statistics (hsv//eng)
Keyword
- Bayesian inference
- Tangency portfolio
- MCMC
- Parameter uncertainty
Publication and Content Type
- ref (subject category)
- art (subject category)
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