Abstract
ABSTRACT This paper employs novel asset pricing model methods to construct the global minimum-variance portfolio G. Out-of-sample analyses of U.S. stock returns show that optimized G portfolios have relatively higher expected returns, lower variance, and higher Sharpe ratios than those based on traditional variance-covariance matrix estimation methods. Robustness checks confirm these findings and show that our G portfolio has lower variance than currently available minimum-variance exchange traded funds (ETFs). We conclude that asset pricing models can be used to build high performing G portfolios. Implications to portfolio management are discussed.
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