| Title | A Bayesian information criterion for portfolio selection |
| Authors | Lan, Wei Wang, Hansheng Tsai, Chih-Ling |
| Affiliation | Peking Univ, Guanghua Sch Management, Beijing 100871, Peoples R China. Univ Calif Davis, Grad Sch Management, Davis, CA 95616 USA. |
| Keywords | Bayesian information criterion Minimal variance portfolio Portfolio selection Risk diversification Selection consistency MODEL REGRESSION DIVERSIFICATION |
| Issue Date | 2012 |
| Publisher | computational statistics data analysis |
| Citation | COMPUTATIONAL STATISTICS & DATA ANALYSIS.2012,56,(1),88-99. |
| Abstract | The mean-variance theory of Markowitz (1952) indicates that large investment portfolios naturally provide better risk diversification than small ones. However, due to parameter estimation errors, one may find ambiguous results in practice. Hence, it is essential to identify relevant stocks to alleviate the impact of estimation error in portfolio selection. To this end, we propose a linkage condition to link the relevant and irrelevant stock returns via their conditional regression relationship. Subsequently, we obtain a BIC selection criterion that enables us to identify relevant stocks consistently. Numerical studies indicate that BIC outperforms commonly used portfolio strategies in the literature. (C) 2011 Elsevier B.V. All rights reserved. |
| URI | http://hdl.handle.net/20.500.11897/163595 |
| ISSN | 0167-9473 |
| DOI | 10.1016/j.csda.2011.06.012 |
| Indexed | SCI(E) EI SSCI |
| Appears in Collections: | 光华管理学院 |
