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Portfolio management with semi-parametric bootstrapping
Journal of Risk Management in Financial Institutions,
3
(2),
174-183
(2010)
Abstract
Estimation risk is an important topic within the area of risk management. Uncertainties regarding parameter estimates carry on to the final statistical product, such as investment strategies, and need to be estimated and accounted for. Unless the exact expressions for the estimators’ variances are known, the product’s variability will be assessed through bootstrap techniques. The present paper addresses this issue, proposing a semi-parametric bootstrap method for reproducing the data, a method which parametrically takes care of all marginal characteristics of the returns data, and also takes care of the dependence structure existing in the data, in a very simple and clever non-parametric way. The technique is applied to the problem of assessing the variability of the Markowitz-efficient frontier. Simulation experiments are conducted to assess the out-of-sample forecasting usefulness of the semi-parametric bootstrap methodology.
Keywords: resampling; efficient frontier; portfolio management; estimation risk; bootstrap
The full article is available to subscribers to the journal.
Author's Biography
Beatriz Vaz De Melo Mendes holds a PhD in statistics from Rutgers University, New Jersey. Beatriz is an Associate Professor at the Institute of Mathematics/COPPEAD, Federal University at Rio de Janeiro, Brazil. She is an author and co-author of six books on extremes, finance, risk and copulas, and has had papers published in the Annals of Statistics, Journal of Derivatives, Computational Statistics, Journal of Statistical Computation and Simulation and the Journal of Risk, among many others. Her research areas include financial modelling and risk estimation, robust inference, extremes and copulas.
Ricardo Pereira Câmara Leal is Professor of Finance at the Coppead Graduate School of Business in Brazil and has taught at Georgetown University and at the University of Nevada. Ricardo’s research and consulting is on emerging securities markets and corporate governance. He is a former president of the Brazilian Finance Society and of the Business Association of Latin America Studies, and is the editor of the Brazilian Finance Review. Ricardo is a senior research fellow of the Brazilian Corporate Governance Institute.
Citation
Mendes, Beatriz Vaz De Melo and Leal, Ricardo Pereira Câmara (2010, March 1). Portfolio management with semi-parametric bootstrapping. In the Journal of Risk Management in Financial Institutions, Volume 3, Issue 2. https://doi.org/10.69554/RJAE4121.
© Henry Stewart
Publications LLP
Publications LLP