Portfolio Selection with a Bayesian Approach

This paper deals with a traditional method for creating portfolios of financial assets known as the mean-variance portfolio theory and especially a specific case of the theory known as the global minimum variance portfolio. A disadvantage with many of the models that exist within portfolio theory is that they do often only consider a few quantified variables in the calculations and this could cause problems in areas such as finance where a lot of the information regarding investments can be difficult to quantify into numbers. In the paper Bayesian statistical methods are used to try to implement the beliefs of an investor and by testing and evaluate different approaches examine if it is possible to find a method that take both calculated variables and an investor’s beliefs into account