Sharp style analysis in the MSCI sector portfolios: a Monte Carlo integration approach
Christodoulakis, George (2002) Sharp style analysis in the MSCI sector portfolios: a Monte Carlo integration approach. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.02-).
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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
We examine a decision-theoretic Bayesian framework for the estimation of Sharpe Style portfolio weights of the MSCI sector returns. Following van Dijk and Kloek (1980) an appropriately defined prior density of style weights can incorporate non-negativity and other constraints. We use factor-mimicking portfolios as proxies to global style factors such as Value, Growth, Debt and Size. Our computational approach is based on Monte Carlo Integration (MCI) of Kloek and van Dijk (1978) for the estimation of the posterior moments and distribution of portfolio weights. MCI provides a number of advantages, such as a flexible choice of prior distributions, improved numerical accuracy of the estimated parameters, the use of inequality restrictions in prior distributions and exact inference procedures. Our empirical findings suggest that, contrary to existing evidence, style factors do explain the MSCI sector portfolio returns for the particular sample period. Further, non-negativity constraints on portfolio weights were found to be binding in all cases.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Alternative Title:||Sharp style analysis in the Morgan Stanley Capital International sector portfolios: a Monte Carlo integration approach|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Morgan Stanley Capital International, Portfolio management, Distribution (Economic theory), Monte Carlo method|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||June 2002|
|Number of Pages:||22|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Andrews D W K (1999), Estimation when the Parameter in on the Boundary, Econometrica, 67, 1341-1383
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