Sparse and stable Markowitz portfolios.
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ABSTRACT:
SUBMITTER: Brodie J
PROVIDER: S-EPMC2718382 | biostudies-literature | 2009 Jul
REPOSITORIES: biostudies-literature
Publications
Sparse and stable Markowitz portfolios.
Brodie Joshua J Daubechies Ingrid I De Mol Christine C Giannone Domenico D Loris Ignace I
Proceedings of the National Academy of Sciences of the United States of America 20090715 30
We consider the problem of portfolio selection within the classical Markowitz mean-variance framework, reformulated as a constrained least-squares regression problem. We propose to add to the objective function a penalty proportional to the sum of the absolute values of the portfolio weights. This penalty regularizes (stabilizes) the optimization problem, encourages sparse portfolios (i.e., portfolios with only few active positions), and allows accounting for transaction costs. Our approach reco ...[more]
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