Krzysztof Podgórski

Prefekt Statistiska institutionen, Professor

Tangency portfolio weights for singular covariance matrix in small and large dimensions : Estimation and test theory

Författare

Taras Bodnar
Stepan Mazur
Krzysztof Podgórski
Joanna Tyrcha

Summary, in English

In this paper we derive the finite-sample distribution of the estimated weights of the tangency portfolio when both the population and the sample covariance matrices are singular. These results are used in the derivation of a statistical test on the weights of the tangency portfolio where the distribution of the test statistic is obtained under both the null and alternative hypotheses. Moreover, we establish the high-dimensional asymptotic distribution of the estimated weights of the tangency portfolio when both the portfolio dimension and the sample size increase to infinity. The theoretical findings are implemented in an empirical application dealing with the returns on the stocks included into the S&P 500 index.

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