Risk reduction in large portfolios: Why imposing the wrong constraints helps

• 成果类型: Article
• 署名作者: Jagannathan, R; Ma, TS
• 署名单位: Utah System of Higher Education; University of Utah; Northwestern University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/1540-6261.00580
• 发表日期: 2003
• 页码: 1651-1683
• 关键词: VARIANCE-EFFICIENT PORTFOLIOS; performance; selection; returns; MODEL

摘要

Green and Hollifield (1992) argue that the presence of a dominant factor would result in extreme negative weights in mean-variance efficient portfolios even in the absence of estimation errors. In that case, imposing no-short-sale constraints should hurt, whereas empirical evidence is often to the contrary We reconcile this apparent contradiction. We explain why constraining portfolio weights to be nonnegative can reduce the risk in estimated optimal portfolios even when the constraints are wrong. Surprisingly, with no-short-sale constraints in place, the sample covariance matrix performs as well as covariance matrix estimates based on factor models, shrinkage estimators, and daily data.