NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Tongshu Ma

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Working Papers

April 2004A Jackknife Estimator for Tracking Error Variance of Optimal Portfolios Constructed Using Estimated Inputs1
with Gopal K. Basak, Ravi Jagannathan: w10447
We develop a jackknife estimator for the conditional variance of a minimum-tracking- error-variance portfolio constructed using estimated covariances. We empirically evaluate the performance of our estimator using an optimal portfolio of 200 stocks that has the lowest tracking error with respect to the S&P500 benchmark when three years of daily return data are used for estimating covariances. We find that our jackknife estimator provides more precise estimates and suffers less from in-sample optimism when compared to conventional estimators.
May 2002Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps
with Ravi Jagannathan: w8922
Mean-variance efficient portfolios constructed using sample moments often involve taking extreme long and short positions. Hence practitioners often impose portfolio weight constraints when constructing efficient portfolios. Green and Hollifield (1992) argue that the presence of a single dominant factor in the covariance matrix of returns is why we observe extreme positive and negative weights. If this were the case then imposing the weight constraint should hurt whereas the empirical evidence is often to the contrary. We reconcile this apparent contradiction. We show that constraining portfolio weights to be nonnegative is equivalent to using the sample covariance matrix after reducing its large elements and then form the optimal portfolio without any restrictions on portfolio weights. Th...

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