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3h
comment Fixed volatility portfolio with max returns creates skewed results
Yes, it is possible. Assuming you did the non-linear constraint correctly, it could be that with four assets it can't find an optimal portfolio with volatility that low. There are too many potential things it could be to say for sure. Some other tips, draw the efficient frontier (that way you can get a sense of the minimum risk and maximium return portfolios) or switch it around and minimize risk given return (and maybe also draw that frontier).
9h
comment Fixed volatility portfolio with max returns creates skewed results
It is likely an error that can only be evaluated by looking at the code. For instance, it could be that you programmed the non-linear constraint wrong, or it could be that your linear and non-linear constraints are inconsistent somehow. One piece of advice: start with a very simple optimization and gradually make it more complicated, verifying at each stage that you're getting sensible results.
1d
comment State Space models with Short Time Series
Without having a better sense of what you're trying to do, things I would try are 1) increasing frequency of data, 2) leave one out cross validation, 3) Bayesian methods.
Aug
21
awarded  Custodian
Aug
21
reviewed No Action Needed How to classify stocks by their volatility?
Aug
18
comment factor models and using cross section regression
@Viquar I'm more familiar with the approach in that paper as applied to momentum than I am with respect to characteristics-based factors (e.g. P/E). In a cross-sectional approach (as in Barra), one can use a GLS approach to account for the correlation between factors, though I'm not sure how important it is for the level of coefficients versus standard errors.
Aug
14
awarded  Civic Duty
Aug
12
comment Why maximize expected growth rate?
@RRL Wrt to your first paragraph, it might make it a bit more clear to say that Kelly is maximizing the log of wealth, which is equivalent to saying utility is the log of wealth.
Aug
6
comment Johansen Cointegration Test
@user3126171 So perhaps your problem is that you don't understand cointegration or the Johansen test, rather than necessarily how it is implemented in Matlab. As I said, the Spatial Econometrics toolbox manual is very clear about what the Johnansen test means spatial-econometrics.com/html/mbook.pdf Otherwise, most books on time series econometrics tend to cover it. You can also just google johansen test and there are many results that explain it.
Aug
6
comment Johansen Cointegration Test
Honestly, I tend to use the one in the Spatial Econometrics toolbox (its manual is a bit clearer, though there's a link at the bottom of the Matlab link I have above that provides more details). The Matlab test is testing r=0, r=1, i.e. whether the number of cointegrating relationships is some number. The test rejects r=0, so you can say there is one cointegrating relationship.
Aug
5
answered Johansen Cointegration Test
Jul
31
comment Why are we obsessed over normalizing financial data?
@BCLC I would consider standardizing a type of normalizing, but most of the time when people talk about normalizing they're talking about standardizing.
Jul
31
comment Why are we obsessed over normalizing financial data?
@BCLC Well you could use logs or log returns with economic and financial data. Depends on what you're doing.
Jul
29
comment Why are we obsessed over normalizing financial data?
Normalization typically means subtract the mean and divide by the standard deviation. That transformation won't make non-normal data normal.
Jul
26
answered Finding a basket of stocks that tracks an index
Jul
22
answered How to deal with extreme cases in normal random numbers generation?
Jul
17
answered Handling Missing values in stocks returns when estimating the co variance matrix
Jul
16
comment Math basics of Equally-weighted Risk contributions
I had first read about risk contributions in Jorian's Value at Risk. There's a paper by Boudt, Carl, and Peterson in the Journal of Risk that does the calculations for CVaR that I sometimes refer to also.
Jul
14
comment How to get permanently growing chart within PCA
I'm pretty sure that all they do is convert returns back to levels.
Jun
27
comment Correlation of Dividend Yield Index/Stock
I haven't done the regressions personally, but I would expect that there is a cointegrating relationship between dividend yields for individual stocks and the yield of the index. There is also a mean-reverting effect in dividend yields more generally that you should incorporate.