mlsanityData to 14 Oct 2026

The Decision Geometry of Covariance Estimation for the Global Minimum-Variance Portfolio under Heavy Tails

arXiv 2606.27462 ↗First posted 25 Jun 2026stat.ML cs.LG q-fin.PMcited by 1

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Abstract (arXiv)

The global minimum-variance portfolio (GMVP) is the canonical decision built from an estimated covariance matrix, yet covariance estimators are universally evaluated by matrix-norm loss, which is not the object the decision depends on. We characterise exactly how covariance-estimation error maps into GMVP suboptimality. We prove an exact regret identity and a non-asymptotic bound showing decision regret depends on the estimation error only through its action on the portfolio weights, scaled by portfolio concentration and the conditioning of the true covariance. From this we derive the decision geometry: GMVP regret is invariant to a (p-1)-dimensional projection of the p^2-dimensional error matrix, with invariance to the covariance-scale direction as an exact special case. We then apply the framework to heavy-tailed returns (tail index kappa in (2,4)), establishing the regret convergence rate implied by the centred operator-norm rate, and confirm the theory on a skew-t/t-copula simulation design with pre-registered analysis. The decision-focused advantage is a sharper constant and a concentration discount rather than a faster rate; we report an honest high-conditioning boundary of the rate prediction. The results complement recent decision-focused learning approaches by supplying the exact estimation geometry and consistency theory they lack.

Key facts. Cited by 1 paper in the map (data through 14 Oct 2026). Builds on 11 of its 47 references that are in the map. First posted on arXiv 25 Jun 2026.

Builds on

11 of 47 references.

References · 11

  1. 2017OptNet: Differentiable Optimization as a Layer in Neural Networkscited by 599
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  5. 2023Decision-Focused Learning: Foundations, State of the Art, Benchmark and Future Opportunitiescited by 130
  6. 2022Distributionally Robust End-to-End Portfolio Constructioncited by 17
  7. 2018User-Friendly Covariance Estimation for Heavy-Tailed Distributionscited by 16
  8. 2022Covariance Estimation: Optimal Dimension-free Guarantees for Adversarial Corruption and Heavy Tailscited by 14
  9. 2021Non-linear shrinkage of the price return covariance matrix is far from optimal for portfolio optimisationcited by 5
  10. 2024Return Prediction for Mean-Variance Portfolio Selection: How Decision-Focused Learning Shapes Forecasting Modelscited by 5
  11. 2025Estimating Covariance for Global Minimum Variance Portfolio: A Decision-Focused Learning Approachcited by 3

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