Precision Versus Shrinkage: A Comparative Analysis of Covariance Estimation Methods for Portfolio Allocation
Precision Versus Shrinkage: A Comparative Analysis of Covariance Estimation Methods for Portfolio Allocation
In this paper, we perform a comprehensive study of different covariance and precision matrix estimation methods in the context of minimum variance portfolio allocation. The set of models studied by us can be broadly categorized as: Gaussian Graphical Model (GGM) based methods, Shrinkage Methods, Thresholding and Random Matrix Theory (RMT) …