We evaluate the out-of-sample performance of the sample-based mean-variance model, and its extensions designed to reduce estimation error, relative to the naive 1-N portfolio. Of the 14 models we evaluate across seven empirical datasets, none is consistently better than the 1-N rule in terms of Sharpe ratio, certainty-equivalent return, or turnover, which indicates that, out of sample, the gain from optimal diversification is more than offset by estimation error. Based on parameters calibrated to the US equity market, our analytical results and simulations show that the estimation window needed for the sample-based mean-variance strategy and its extensions to outperform the 1-N benchmark is around 3000 months for a portfolio with 25 assets and about 6000 months for a portfolio with 50 assets. This suggests that there are still many "miles to go" before the gains promised by optimal portfolio choice can actually be realized out of sample. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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Optimal Versus Naive Diversification: How Inefficient is the 1/N Portfolio Strategy?

http://perso.ens-lyon.fr/patrick.flandrin/LedoitWolf_JMA2004.pdf

A well-conditioned estimator for large-dimensional covariance matrices

Stable non-Gaussian random processes , by G. Samorodnitsky and M. S. Taqqu. Pp. 632. £49.50. 1994. ISBN 0-412-05171-0 (Chapman and Hall).

The development of high-resolution neuroimaging and multielectrode electrophysiological recording provides neuroscientists with huge amounts of multivariate data. The complexity of the data creates a need for statistical summary, but the local averaging standardly applied to this end may obscure the effects of greatest neuroscientific interest. In neuroimaging, for example, brain mapping analysis has focused on the discovery of activation, i.e., of extended brain regions whose average activity changes across experimental conditions. Here we propose to ask a more general question of the data: Where in the brain does the activity pattern contain information about the experimental condition? To address this question, we propose scanning the imaged volume with a "searchlight," whose contents are analyzed multivariately at each location in the brain.

https://www.pnas.org/content/pnas/103/10/3863.full.pdf

Information-based functional brain mapping

Deep learning with convolutional neural networks (deep ConvNets) has revolutionized computer vision through end-to-end learning, that is, learning from the raw data. There is increasing interest in using deep ConvNets for end-to-end EEG analysis, but a better understanding of how to design and train ConvNets for end-to-end EEG decoding and how to visualize the informative EEG features the ConvNets learn is still needed. Here, we studied deep ConvNets with a range of different architectures, designed for decoding imagined or executed tasks from raw EEG. Our results show that recent advances from the machine learning field, including batch normalization and exponential linear units, together with a cropped training strategy, boosted the deep ConvNets decoding performance, reaching at least as good performance as the widely used filter bank common spatial patterns (FBCSP) algorithm (mean decoding accuracies 82.1% FBCSP, 84.0% deep ConvNets). While FBCSP is designed to use spectral power modulations, the features used by ConvNets are not fixed a priori. Our novel methods for visualizing the learned features demonstrated that ConvNets indeed learned to use spectral power modulations in the alpha, beta, and high gamma frequencies, and proved useful for spatially mapping the learned features by revealing the topography of the causal contributions of features in different frequency bands to the decoding decision. Our study thus shows how to design and train ConvNets to decode task-related information from the raw EEG without handcrafted features and highlights the potential of deep ConvNets combined with advanced visualization techniques for EEG-based brain mapping. Hum Brain Mapp 38:5391-5420, 2017. © 2017 Wiley Periodicals, Inc.

Deep learning with convolutional neural networks for EEG decoding and visualization.

Improved Estimation of the Covariance Matrix of Stock Returns With an Application to Portfolio Selection

This paper proposes an algorithm that improves the locality of a loop nest by transforming the code via interchange, reversal, skewing and tiling. The loop transformation algorithm is based on two concepts: a mathematical formulation of reuse and locality, and a loop transformation theory that unifies the various transforms as unimodular matrix transformations.The algorithm has been implemented in the SUIF (Stanford University Intermediate Format) compiler, and is successful in optimizing codes such as matrix multiplication, successive over-relaxation (SOR), LU decomposition without pivoting, and Givens QR factorization. Performance evaluation indicates that locality optimization is especially crucial for scaling up the performance of parallel code.

/pdf/a-data-locality-optimizing-algorithm-1soypwfkmt.pdf

A data locality optimizing algorithm

The central message of this article is that no one should use the sample covariance matrix for portfolio optimization. It is subject to estimation error of the kind most likely to perturb a mean-variance optimizer. Instead, a matrix can be obtained from the sample covariance matrix through a transformation called shrinkage. This tends to pull the most extreme coefficients toward more central values, systematically reducing estimation error when it matters most. Statistically, the challenge is to know the optimal shrinkage intensity. Shrinkage reduces portfolio tracking error relative to a benchmark index, and substantially raises the manager9s realized information ratio.

/pdf/honey-i-shrunk-the-sample-covariance-matrix-3o838a4s7t.pdf

Honey, I shrunk the sample covariance matrix

An approach to transformations for general loops in which dependence vectors represent precedence constraints on the iterations of a loop is presented. Therefore, dependences extracted from a loop nest must be lexicographically positive. This leads to a simple test for legality of compound transformations: any code transformation that leaves the dependences lexicographically positive is legal. The loop transformation theory is applied to the problem of maximizing the degree of coarse- or fine-grain parallelism in a loop nest. It is shown that the maximum degree of parallelism can be achieved by transforming the loops into a nest of coarsest fully permutable loop nests and wavefronting the fully permutable nests. The canonical form of coarsest fully permutable nests can be transformed mechanically to yield maximum degrees of coarse- and/or fine-grain parallelism. The efficient heuristics can find the maximum degrees of parallelism for loops whose nesting level is less than five. >

Michael Wolf

Papers

A well-conditioned estimator for large-dimensional covariance matrices

Improved Estimation of the Covariance Matrix of Stock Returns With an Application to Portfolio Selection

A data locality optimizing algorithm

Honey, I shrunk the sample covariance matrix

A loop transformation theory and an algorithm to maximize parallelism