22. March 2023
2 minutes

First OLZ publication in renowned journal for empirical finance

Our Senior Research Analyst Dr. Gianluca De Nard has published his long-standing research at the University of Zurich, New York University and at OLZ on robust minimum-variance portfolios in the prestigious Journal of Empirical Finance.

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Using, Taming or Avoiding the Factor Zoo?
A Double-Shrinkage Estimator for Covariance Matrices

The applied research study shows that a systematic incorporation of certain factors, such as those from the CAPM or Fama-French model, allows a more accurate estimation of the covariance matrix and thus of the minimum-variance portfolio. The proposed "double-shrinkage" procedure smooths not only the estimate of the volatilities and correlations of stock returns, but also that of the factors. This new robust estimation can be used in portfolio optimization to reduce risks, as well as to compute a more stable and better-balanced portfolio with less extreme allocations.

OLZ Gianluca de Nard.
Dr. Gianluca De Nard
Head of Quantitative Research

Member of the NYU Stern Volatility and Risk Institute in New York City and Senior Research Associate at the Department of Economics at the University of Zurich. Previously, he conducted research as a postdoctoral fellow at Yale University.

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