Factor Models for Portfolio Selection in Large Dimensions: The Good, the Better and the Ugly
提出一种新的协方差矩阵估计量，将因子结构与残差时变条件异方差相结合，适用于多达1000只股票的大维度场景，在历史数据上优于多种现有模型，可用于更有效的投资组合选择和异常检测。
Abstract This paper injects factor structure into the estimation of time-varying, large-dimensional covariance matrices of stock returns. Existing factor models struggle to model the covariance matrix of residuals in the presence of time-varying conditional heteroskedasticity in large universes. Conversely, rotation-equivariant estimators of large-dimensional time-varying covariance matrices forsake directional information embedded in market-wide risk factors. We introduce a new covariance matrix estimator that blends factor structure with time-varying conditional heteroskedasticity of residuals in large dimensions up to 1000 stocks. It displays superior all-around performance on historical data against a variety of state-of-the-art competitors, including static factor models, exogenous factor models, sparsity-based models, and structure-free dynamic models. This new estimator can be used to deliver more efficient portfolio selection and detection of anomalies in the cross-section of stock returns.