3
$\begingroup$

I've been looking into Ledoit-Wolf shrinkage but I've found the papers concentrate on large numbers of assets that tend to all be highly correlated. Often a universe of large cap stocks.

I'm concerned that portfolio with a mix of stocks and bonds ETFs the bonds may in steady state have a near zero correlation with the stocks and the constant correlation matrix would be a poor prior.

I note that Betterment uses shrinkage in their stock/bond asset allocation but they don't talk about their prior. Does there exist well reasoned work exploring good priors for diverse portfolios?

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.