Covariance matrix estimation methods for constrained portfolio optimization in a South African setting

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dc.contributor.advisorBradfield, Daviden_ZA
dc.contributor.advisorMunro, Brianen_ZA
dc.contributor.authorMadume, Jaison Pezisaien_ZA
dc.date.accessioned2014-07-31T12:25:08Z
dc.date.available2014-07-31T12:25:08Z
dc.date.issued2010en_ZA
dc.description.abstractOne of the major topics of concern in Modern Portfolio Theory is portfolio optimization which is centred on the mean-variance framework. In order for this framework to be implemented, esti- mated parameters (covariance matrix for the constrained portfo- lio) are required. The problem with these estimated parameters is that they have to be extracted from historical data based on certain assumptions. Because of the di erent estimation methods that can be used the parameters thus obtained will su er either from estimation error or speci cation error. In order to obtain results that are realistic in the optimization, one needs then to establish covariance matrix estimators that are as good as possi- ble. This paper explores the various covariance matrix estimation methods in a South African setting focusing on the constrained portfolio. The empirical results show that the Ledoit shrinkage to a constant correlation method, the Principal Component Analy- sis method and the Portfolio of estimators method all perform as good as the Sample covariance matrix in the Ex-ante period but improve on it slightly in the Ex-post period. However, the im- provement is of a small magnitude, as a result the sample covari- ance matrix can be used in the constrained portfolio optimization in a South African setting.en_ZA
dc.identifier.apacitationMadume, J. P. (2010). <i>Covariance matrix estimation methods for constrained portfolio optimization in a South African setting</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,School of Economics. Retrieved from http://hdl.handle.net/11427/5745en_ZA
dc.identifier.chicagocitationMadume, Jaison Pezisai. <i>"Covariance matrix estimation methods for constrained portfolio optimization in a South African setting."</i> Thesis., University of Cape Town ,Faculty of Commerce ,School of Economics, 2010. http://hdl.handle.net/11427/5745en_ZA
dc.identifier.citationMadume, J. 2010. Covariance matrix estimation methods for constrained portfolio optimization in a South African setting. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Madume, Jaison Pezisai AB - One of the major topics of concern in Modern Portfolio Theory is portfolio optimization which is centred on the mean-variance framework. In order for this framework to be implemented, esti- mated parameters (covariance matrix for the constrained portfo- lio) are required. The problem with these estimated parameters is that they have to be extracted from historical data based on certain assumptions. Because of the di erent estimation methods that can be used the parameters thus obtained will su er either from estimation error or speci cation error. In order to obtain results that are realistic in the optimization, one needs then to establish covariance matrix estimators that are as good as possi- ble. This paper explores the various covariance matrix estimation methods in a South African setting focusing on the constrained portfolio. The empirical results show that the Ledoit shrinkage to a constant correlation method, the Principal Component Analy- sis method and the Portfolio of estimators method all perform as good as the Sample covariance matrix in the Ex-ante period but improve on it slightly in the Ex-post period. However, the im- provement is of a small magnitude, as a result the sample covari- ance matrix can be used in the constrained portfolio optimization in a South African setting. DA - 2010 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2010 T1 - Covariance matrix estimation methods for constrained portfolio optimization in a South African setting TI - Covariance matrix estimation methods for constrained portfolio optimization in a South African setting UR - http://hdl.handle.net/11427/5745 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/5745
dc.identifier.vancouvercitationMadume JP. Covariance matrix estimation methods for constrained portfolio optimization in a South African setting. [Thesis]. University of Cape Town ,Faculty of Commerce ,School of Economics, 2010 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/5745en_ZA
dc.language.isoeng
dc.publisher.departmentSchool of Economicsen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherMathematical Financeen_ZA
dc.titleCovariance matrix estimation methods for constrained portfolio optimization in a South African settingen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMComen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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