Qian, Hang (2009): Bayesian Portfolio Selection with Gaussian Mixture Returns.
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Markowitz portfolio selection is challenged by huge implementation barriers. This paper addresses the parameter uncertainty and deviation from normality in a Bayesian framework. The non-normal asset returns are modeled as finite Gaussian mixtures. Gibbs sampler is employed to obtain draws from the posterior predictive distribution of asset returns. Optimal portfolio weights are then constructed so as to maximize agents’ expected utility. Simple experiment suggests that our Bayesian portfolio selection procedure performs exceedingly well.
|Item Type:||MPRA Paper|
|Original Title:||Bayesian Portfolio Selection with Gaussian Mixture Returns|
|Keywords:||portfolio selection; Gaussian mixtures; Bayesian|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General
|Depositing User:||Hang Qian|
|Date Deposited:||09. Aug 2011 01:57|
|Last Modified:||16. Feb 2013 03:36|
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