Abstract
In this paper, using the shrinkage-based approach for portfolio weights and modern results from random matrix theory we construct an effective procedure for testing the efficiency of the expected utility (EU) portfolio and discuss the asymptotic behavior of the proposed test statistic under the high-dimensional asymptotic regime, namely when the number of assets p increases at the same rate as the sample size n such that their ratio p/n approaches a positive constant cin (0,1) as nto infty. We provide an extensive simulation study where the power function and receiver operating characteristic curves of the test are analyzed. In the empirical study, the methodology is applied to the returns of S&P 500 constituents.
| Original language | English |
|---|---|
| Article number | 9258421 |
| Pages (from-to) | 1-14 |
| Number of pages | 14 |
| Journal | IEEE Transactions on Signal Processing |
| Volume | 69 |
| DOIs | |
| Publication status | Published - 2021 |
Bibliographical note
Green Open Access added to TU Delft Institutional Repository ‘You share, we take care!’ – Taverne project https://www.openaccess.nl/en/you-share-we-take-careOtherwise as indicated in the copyright section: the publisher is the copyright holder of this work and the author uses the Dutch legislation to make this work public.
Keywords
- Finance
- mean-variance optimal portfolio
- portfolio analysis
- random matrix theory
- shrinkage estimator
- statistical test