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A Nonparametric Approach to Portfolio Shrinkage

Han, Chulwoo

A Nonparametric Approach to Portfolio Shrinkage Thumbnail


Authors

Chulwoo Han



Abstract

This paper develops a shrinkage model for portfolio choice. It places a layer on a conventional portfolio problem where the optimal portfolio is shrunk towards a reference portfolio. The model can accommodate a wide range of portfolio problems with various objectives and constraints, and its implementation is simple and straightforward. A data-driven method to determine the shrinkage level is offered. A comprehensive comparative study suggests the proposed model substantially enhances the performance of its underlying model and outperforms existing shrinkage models as well as the naïve strategy. The naïve strategy serves better as the reference portfolio than the current portfolio.

Citation

Han, C. (2020). A Nonparametric Approach to Portfolio Shrinkage. Journal of Banking and Finance, 120, Article 105953. https://doi.org/10.1016/j.jbankfin.2020.105953

Journal Article Type Article
Acceptance Date Sep 5, 2020
Online Publication Date Sep 16, 2020
Publication Date 2020-11
Deposit Date Sep 7, 2020
Publicly Available Date Mar 16, 2022
Journal Journal of Banking and Finance
Print ISSN 0378-4266
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 120
Article Number 105953
DOI https://doi.org/10.1016/j.jbankfin.2020.105953
Public URL https://durham-repository.worktribe.com/output/1293093

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