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Estimating the Global Minimum Variance Portfolio

Schmalenbach Business Review, Vol. 58, October 2006

18 Pages Posted: 26 Oct 2006  

Christoph Memmel

Deutsche Bundesbank

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR)

Abstract

According to standard portfolio theory, the tangency portfolio is the only efficient stock portfolio. However, empirical studies show that an investment in the global minimum variance portfolio often yields better out-of-sample results than does an investment in the tangency portfolio and suggest investing in the global minimum variance portfolio. But little is known about the distributions of the weights and return parameters of this portfolio. Our contribution is to determine these distributions. By doing so, we answer several important questions in asset management.

Keywords: Estimation Risk, Global Minimum Variance Portfolio, Weight Estimation

JEL Classification: C22, G11

Suggested Citation

Memmel, Christoph and Kempf, Alexander, Estimating the Global Minimum Variance Portfolio. Available at SSRN: https://ssrn.com/abstract=940367

Christoph Memmel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Alexander Kempf (Contact Author)

University of Cologne - Department of Finance & Centre for Financial Research (CFR) ( email )

Cologne, 50923
Germany
+49 221 470 2714 (Phone)
+49 221 470 3992 (Fax)

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