Abstract
We investigate if portfolios can be improved if the classical Markowitz mean–variance portfolio theory is combined with recently proposed change point tests for dependence measures. Taking into account that the dependence structure of financial assets typically cannot be assumed to be constant over longer periods of time, we estimate the covariance matrix of the assets, which is used to construct global minimum-variance portfolios, by respecting potential change points. It is seen that a recently proposed test for changes in the whole covariance matrix is indeed partially useful whereas pairwise tests for variances and correlations are not suitable for these applications without further adjustments.
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Acknowledgments
Financial support by Deutsche Forschungsgemeinschaft (SFB 823, Statistik nichtlinearer dynamischer Prozesse, project A1) is gratefully acknowledged. We would like to thank two unknown referees for their helpful comments, which led to a substantial improvement of an earlier version of this paper.
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Wied, D., Ziggel, D. & Berens, T. On the application of new tests for structural changes on global minimum-variance portfolios. Stat Papers 54, 955–975 (2013). https://doi.org/10.1007/s00362-013-0511-4
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DOI: https://doi.org/10.1007/s00362-013-0511-4