NATIONAL BUREAU OF ECONOMIC RESEARCH
Gopal K. Basak
Indian Statistical Institute
NBER Working Papers and Publications
|April 2004||A Jackknife Estimator for Tracking Error Variance of Optimal Portfolios Constructed Using Estimated Inputs1|
with Ravi Jagannathan, Tongshu Ma: 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.