• Corpus ID: 218581532

Statistical inference for the EU portfolio in high dimensions

@article{Bodnar2020StatisticalIF,
  title={Statistical inference for the EU portfolio in high dimensions},
  author={Taras Bodnar and Solomiia Dmytriv and Yarema Okhrin and Nestor Parolya and Wolfgang Schmid},
  journal={arXiv: Portfolio Management},
  year={2020}
}

• Taras Bodnar, Solomiia Dmytriv, +2 authors W. Schmid
• Published 10 May 2020
• Computer Science, Mathematics
• arXiv: Portfolio Management

In this paper, using the shrinkage-based approach for portfolio weights and modern results from random matrix theory we construct an effective procedure for testing the efficiency of the expected utility (EU) portfolio and discuss the asymptotic behavior of the proposed test statistic under the high-dimensional asymptotic regime, namely when the number of assets $p$ increases at the same rate as the sample size $n$ such that their ratio $p/n$ approaches a positive constant $c\in(0,1)$ as $n\to\infty$. We provide an extensive simulation study where the power function and receiver operating characteristic curves of the test are analyzed. In the empirical study, the methodology is applied to the returns of S\&P 500 constituents.