Faculty of Business Administration

Evolution of Portfolio Optimization

Prof Jet Lianjie SHU

Professor in Decision Sciences

University of Macau

Date: October 9, 2019 (Wednesday)

Time: 09:45~10:45

Venue: E22-4010

Abstract

The classical mean-variance portfolio model was originally proposed by Markowitz (1952). It has now undergone more than 60 years of development. In the mean-variance portfolio model, the mean and the covariance matrix of asset returns are often unknown and need to be estimated. However, the sampling errors have adverse effects on portfolio performance, leading to sub-optimal and unstable portfolio weights. Various strategies have been proposed to reduce the sampling errors. In this talk, both the traditional methods and some modern high-dimensional statistical approaches are widely reviewed. Moreover, a new approach based on the shrinkage of the sample eigenvalues is proposed, aimed at reducing the over-dispersion issue of the sample eigenvalues. The empirical studies show that the proposed approach can often achieve a lower out-of-sample variance and higher Sharpe ratio than the existing portfolio strategies in most real data sets.

Biography

Prof. Lianjie Shu is currently Professor in Faculty of Business Administration at University of Macau. He received his Bachelor degree in Mechanical Engineering and Automation from Xi’an Jiao Tong University in 1998, and his Ph.D. in Industrial Engineering and Engineering Management from the Hong Kong University of Science and Technology (HKUST) in 2002, respectively. He currently serves an Associate Editor on Journal of Statistical Computation and Simulation and a Senior Editor on Journal of Industrial and production Engineering. He is a senior member of Institute of Industrial and Systems Engineers (IISE) and American Society for Quality (ASQ). His recent research interests include Quantitative Finance, High-dimensional Statistics, and Statistical Quality Control. His publications appear on a wide variety of journals such as Journal of Financial and Quantitative Analysis, Statistics in Medicine, Naval Research Logistics, IISE Transactions, Journal of Quality Technology, etc.