FORECASTING COVARIANCE MATRICES FOR ASSET ….pptVIP

FORECASTING COVARIANCE MATRICES FOR ASSET ALLOCATION;THE SETTING;THE CLASSICAL PORTFOLIO PROBLEM;IMPLEMENTATION REQUIREMENTS;MORE ADVANCED QUESTIONS;THE PROBLEM;SOME LITERATURE;MORE REFERENCES;THE FORMULATION;THE SOLUTION;VALUATION OF VOLATILITY;The True Process;THEOREM;THEOREM;IMPLICATION ;PICTURES;17;18;19;Variances are correctly estimated, but a correlation of .7 is used instead of a correlation of -.7. Efficiency loss is 610%.;21;22;A COSTLESS ERROR;TESTING;THE ACCURACY OF A METHOD;CHOICE OF X;TESTING EQUALITY OF TWO MODELS;JOINTLY TESTING FOR MANY MEAN VECTORS;THE DATA;SUMMARY STATISTICS;31;THE METHODS;METHODS CONTINUED;34;35;36;37;38;39;Variance Rank across Bond Expected Returns;Comparision of volatilities (non recursive estimates);42;Comparision of volatilities (recursive methods);Comparision of volatilities (recursive methods);?;Tests of Accuracy: Number of μ’s getting 5% Acceptances;Table 162: regression with intercept, dummies and one lag: test that all the regressors are zero (level of significance is 5%) ;Tests of Accuracy: Number of μ’s getting 5% Acceptances;Diebold and Mariano test (variance correction);Diebold and Mariano test (no variance correction) Recursive estimates;BOLD DIFFERENCES NOT SIGNIFICANT AT 5%;BOLD DIFFERENCES NOT SIGNIFICANT AT 5%;CONCLUSIONS