English

Zero Variance Portfolio

Methodology 2026-02-24 v1 Statistics Theory Applications Statistics Theory

Abstract

When the number of assets is larger than the sample size, the minimum variance portfolio interpolates the training data, delivering pathological zero in-sample variance. We show that if the weights of the zero variance portfolio are learned by a novel ``Ridgelet'' estimator, in a new test data this portfolio enjoys out-of-sample generalizability. It exhibits the double descent phenomenon and can achieve optimal risk in the overparametrized regime when the number of assets dominates the sample size. In contrast, a ``Ridgeless'' estimator which invokes the pseudoinverse fails in-sample interpolation and diverges away from out-of-sample optimality. Extensive simulations and empirical studies demonstrate that the Ridgelet method performs competitively in high-dimensional portfolio optimization.

Cite

@article{arxiv.2602.19462,
  title  = {Zero Variance Portfolio},
  author = {Jinyuan Chang and Yi Ding and Zhentao Shi and Bo Zhang},
  journal= {arXiv preprint arXiv:2602.19462},
  year   = {2026}
}
R2 v1 2026-07-01T10:46:47.810Z