Estimation error using approaches including the mvp
APRMProject
1 Selecting the Data
2.1 Standard Markovitz
2.2 Tackling Estimation Error
1. Use the MVP:
2. No short selling constraint:
3. Maximum weights of 50%/100%:
Standard in blue, max weight 100% purple,max weight 50% yellow,no short selling orange.
For the maximum weight 50% and 100% constraint, the minimum variance portfolio occurs at the same point as with the standard approach. For the no short selling constraint, however, the minimum variance portfolio has a higher standard deviation. We find that all the constraints shrink the frontier, with the no short selling constraint producing a completely different frontier. The maximum weight 50% constraint diverges from the standard approach for most positive values and keeps going further away, and the maximum weight 100% constraint takes longer to diverge from the standard approach.
