Statistical Portfolio Estimation under the Utility Function Depending on Exogenous Variables

Abstract EN

In the estimation of portfolios, it is natural to assume that the utility function depends on exogenous variable.

From this point of view, in this paper, we develop the estimation under the utility function depending on exogenous variable.

To estimate the optimal portfolio, we introduce a function of moments of the return process and cumulant between the return processes and exogenous variable, where the function means a generalized version of portfolio weight function.

First, assuming that exogenous variable is a random process, we derive the asymptotic distribution of the sample version of portfolio weight function.

Then, an influence of exogenous variable on the return process is illuminated when exogenous variable has a shot noise in the frequency domain.

Second, assuming that exogenous variable is nonstochastic, we derive the asymptotic distribution of the sample version of portfolio weight function.

Then, an influence of exogenous variable on the return process is illuminated when exogenous variable has a harmonic trend.

We also evaluate the influence of exogenous variable on the return process numerically.