Revisiting EWMA in High‐Frequency‐Based Portfolio Optimization: A Comparative Assessment

ABSTRACT This paper compares the statistical and economic performance of state‐of‐the‐art high‐frequency (HF) based multivariate volatility models with a simpler, widely used alternative, the Exponentially Weighted Moving Average (EWMA) filter. Using over two decades of 100 U.S. stock returns (2002–2023), we assess model performance through a Global Minimum Variance portfolio optimization exercise, with and without short‐selling restrictions across multiple forecast horizons. We find that the EWMA model cannot consistently be outperformed by more complex HF‐based volatility models at the daily and weekly forecast horizons, even delivering significant utility gains when including transaction costs due to a favorable balance between turnover and ex‐post portfolio volatility. At the monthly horizon, the EWMA remains competitive against most of its competitors. Our findings hold across alternative specifications, including different estimation window lengths, portfolio sizes and smoothing parameter values, emphasizing the continued relevance of parsimonious volatility specifications, such as the EWMA model, in realistic investment settings.

Authors

Institutions

Publication Details

Journal
Journal of Applied Econometrics
Published
2026-03-13
DOI
https://doi.org/10.1002/jae.70053
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
0.00
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Revisiting EWMA in High‐Frequency‐Based Portfolio Optimization: A Comparative Assessment

Anne Opschoor, Laura Capera Romero
Journal of Applied Econometrics
Financial Markets and Investment Strategies
article

Revisiting EWMA in High‐Frequency‐Based Portfolio Optimization: A Comparative Assessment

Anne Opschoor, Laura Capera Romero
article en

Abstract

ABSTRACT This paper compares the statistical and economic performance of state‐of‐the‐art high‐frequency (HF) based multivariate volatility models with a simpler, widely used alternative, the Exponentially Weighted Moving Average (EWMA) filter. Using over two decades of 100 U.S. stock returns (2002–2023), we assess model performance through a Global Minimum Variance portfolio optimization exercise, with and without short‐selling restrictions across multiple forecast horizons. We find that the EWMA model cannot consistently be outperformed by more complex HF‐based volatility models at the daily and weekly forecast horizons, even delivering significant utility gains when including transaction costs due to a favorable balance between turnover and ex‐post portfolio volatility. At the monthly horizon, the EWMA remains competitive against most of its competitors. Our findings hold across alternative specifications, including different estimation window lengths, portfolio sizes and smoothing parameter values, emphasizing the continued relevance of parsimonious volatility specifications, such as the EWMA model, in realistic investment settings.

Journal of Applied Econometrics
Tinbergen Institute (NL), Vrije Universiteit Amsterdam (NL)
Decent work and economic growth
Openalex Percentile: Top 25%
Financial Markets and Investment Strategies
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.