An enhanced Gerber statistic for portfolio optimization.

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Abstract

The purpose of this letter is to introduce a modified version of the Gerber statistic resulting in the enhancement of its function as a measure of statistical co-movement. The modification centres around the redefinition of zones and thresholds, alongside the use of finite real-valued contributions rather than discrete binary counts in assigning value to individual co-movements. Arguments for the former are based on the statistical alignment of data series for the purposes of more effectively delineating concordant and discordant co-movement. Arguments for the latter are based on attributing greater weight to better information. Collectively this approach simultaneously incorporates the merits of Gerber-like thresholds and zoning, and conventional correlation-like co-movement measurement.
Original languageEnglish
Article number103229
JournalFinance Research Letters
Volume49
Early online date10 Aug 2022
DOIs
Publication statusE-pub ahead of print - 10 Aug 2022

Bibliographical note

Publisher Copyright:
© 2022 The Author(s)

Keywords

  • Estimation error
  • Gerber statistic
  • Portfolio optimization
  • Shrinkage
  • Equity co-movements
  • Modern portfolio theory

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