A Jackknife-Type Estimator for Portfolio Revision

49 Pages Posted: 30 May 2011 Last revised: 22 Mar 2016

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Felix Miebs

University of Applied Sciences Cologne

Fabian Trübenbach

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting

Date Written: March 5, 2013

Abstract

This article proposes a novel approach to portfolio revision. The current literature on portfolio optimization uses a somewhat naive approach, where portfolio weights are always completely revised after a predefined fixed period. However, one shortcoming of this procedure is that it ignores parameter uncertainty in the estimated portfolio weights, as well as the biasedness of the in-sample portfolio mean and variance as estimates of the expected portfolio return and out-of-sample variance. To rectify this problem, we propose a Jackknife procedure to determine the optimal revision intensity, i.e., the percent of wealth that should be shifted to the new, in-sample optimal portfolio. We find that our approach leads to highly stable portfolio allocations over time, and can significantly reduce the turnover of several well established portfolio strategies. Moreover, the observed turnover reductions lead to statistically and economically significant performance gains in the presence of transaction costs.

Keywords: Portfolio optimization, Portfolio revision, Jackknife, Transaction costs

JEL Classification: G11

Suggested Citation

Füss, Roland and Miebs, Felix and Trübenbach, Fabian, A Jackknife-Type Estimator for Portfolio Revision (March 5, 2013). Journal of Banking and Finance, Vol. 43, No. 6, 2014, Available at SSRN: https://ssrn.com/abstract=1855225 or http://dx.doi.org/10.2139/ssrn.1855225

Roland Füss

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Felix Miebs (Contact Author)

University of Applied Sciences Cologne ( email )

Claudiusstrasse 1
Cologne, 50678
United States

Fabian Trübenbach

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )

Oestrich-Winkel, 65375
Germany

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