Abstract
Standard methods for optimal allocation of shares in a financial portfolio are determined by second-order conditions which are very sensitive to outliers. The well-known Markowitz approach, which is based on the input of a mean vector and a covariance matrix, seems to provide questionable results in financial management, since small changes of inputs might lead to irrelevant portfolio allocations. However, existing robust estimators often suffer from masking of multiple influential observations, so we propose a new robust estimator which suitably weights data using a forward search approach. A Monte Carlo simulation study and an application to real data show some advantages of the proposed approach.
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Grossi, L., Laurini, F. Robust estimation of efficient mean–variance frontiers. Adv Data Anal Classif 5, 3–22 (2011). https://doi.org/10.1007/s11634-010-0082-3
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DOI: https://doi.org/10.1007/s11634-010-0082-3