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Sequential monitoring of minimum variance portfolio

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Abstract

This paper evaluates the economic effect of monitoring the minimum variance portfolio weights, which depend solely on the covariance matrix of returns. The investor decides whether the portfolio composition providing the smallest portfolio variance remains optimal at the beginning of every new investment period. For this purpose changes in the optimal weights are sequentially detected by means of EWMA control charts. Signals obtained from monitoring are used for improvement of the covariance matrix estimation procedure. The investment strategy exploiting signals from control charts is compared with a number of alternative approaches in the empirical study.

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  1. Institute of Statistics and Econometrics, University of Kiel, Olshausenstrasse 40, 24098, Kiel, Germany

    Vasyl Golosnoy

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  1. Vasyl Golosnoy
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Correspondence to Vasyl Golosnoy.

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Golosnoy, V. Sequential monitoring of minimum variance portfolio . AStA 91, 39–55 (2007). https://doi.org/10.1007/s10182-006-0016-8

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  • DOI: https://doi.org/10.1007/s10182-006-0016-8

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