Bayesian estimation of the efficient frontier

• In this paper, we consider the estimation of the three determining parameters of the efficient frontier, the expected return, and the variance of the global minimum variance portfolio and the slope parameter, from a Bayesian perspective. Their posterior distribution is derived by assigning the diffuse and the conjugate priors to the mean vector and the covariance matrix of the asset returns and is presented in terms of a stochastic representation. Furthermore, Bayesian estimates together with the standard uncertainties for all three parameters are provided, and their asymptotic distributions are established. All obtained findings are applied to real data, consisting of the returns on assets included into the S&P 500. The empirical properties of the efficient frontier are then examined in detail.

Ämnesord

NATURVETENSKAP  -- Matematik (hsv//swe)

NATURAL SCIENCES  -- Mathematics (hsv//eng)

Nyckelord

Bayesian estimation

credible set

efficient frontier

parameter uncertainty

stochastic presentation

Publikations- och innehållstyp

ref (ämneskategori)

art (ämneskategori)