High-Dimensional Minimum Variance Portfolio Estimation Based on High-Frequency Data
31 Pages Posted: 1 Feb 2018 Last revised: 3 Jun 2019
Date Written: June 1, 2019
This paper studies the estimation of high-dimensional minimum variance portfolio (MVP) based on the high frequency returns which can exhibit heteroscedasticity and possibly be contaminated by microstructure noise. Under certain sparsity assumptions on the precision matrix, we propose estimators of the MVP and prove that our portfolios asymptotically achieve the minimum variance in a sharp sense. In addition, we introduce consistent estimators of the minimum variance, which provide reference targets. Simulation and empirical studies demonstrate the favorable performance of the proposed portfolios.
Keywords: Minimum variance portfolio, High dimension, High frequency, CLIME estimator, Precision matrix
JEL Classification: C13, C55, C58, G11
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