Higher-Order Asymptotics for Expected Return of an Optimal Portfolio

• Activity Number: 337
• Type: Contributed
• Date/Time: Tuesday, August 5, 2014 : 10:30 AM to 12:20 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Yongli Han*+
• Companies: University of Hong Kong
• Keywords: higher order asymptotics ; optimal portfolio ; expected return ; multivariate Gaussian distribution

Abstract

Statistical inference based on the asymptotic theory for the expected return under the Markowitz mean-variance portfolio theory typically provides unsatisfactory results. Alternatively, highly accurate likelihood-based analysis for inference on the expected return is considered in this paper. Such higher order asymptotic approximation is derived under the assumption of multivariate Gaussian return distribution. Usefulness of the developed higher order approximation is illustrated through simulation study and application of a real data set.