# sm_vcov: Compute variance covariance of 'Unified' Second Moment In SharpeR: Statistical Significance of the Sharpe Ratio

## Description

Computes the variance covariance matrix of sample mean and second moment.

## Usage

 `1` ```sm_vcov(X,vcov.func=vcov,fit.intercept=TRUE) ```

## Arguments

 `X` an n x p matrix of observed returns. `vcov.func` a function which takes an object of class `lm`, and computes a variance-covariance matrix. If equal to the string "normal", we assume multivariate normal returns. `fit.intercept` a boolean controlling whether we add a column of ones to the data, or fit the raw uncentered second moment.

## Details

Given p-vector x, the 'unified' sample is the p(p+3)/2 vector of x stacked on top of vech(x x'). Given n contemporaneous observations of p-vectors, stacked as rows in the n x p matrix X, this function computes the mean and the variance-covariance matrix of the 'unified' sample.

One may use the default method for computing covariance, via the `vcov` function, or via a 'fancy' estimator, like `sandwich:vcovHAC`, `sandwich:vcovHC`, etc.

## Value

a list containing the following components:

 `mu` a q = p(p+3)/2 vector of the mean, then the vech'd second moment of the sample data `Ohat` the q x q estimated variance covariance matrix. Only the informative part is returned: one may assume a row and column of zeros in the upper left. `n` the number of rows in `X`. `p` the number of assets.

## Note

This function will be deprecated in future releases of this package. Users should migrate at that time to a similar function in the MarkowitzR package.

## Author(s)

Steven E. Pav [email protected]

## References

Pav, S. E. "Asymptotic Distribution of the Markowitz Portfolio." 2013 http://arxiv.org/abs/1312.0557

`ism_vcov`, `sr_vcov`
 ``` 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24``` ```X <- matrix(rnorm(1000*3),ncol=3) Sigmas <- sm_vcov(X) Sigmas.n <- sm_vcov(X,vcov.func="normal") Sigmas.n <- sm_vcov(X,fit.intercept=FALSE) # make it fat tailed: X <- matrix(rt(1000*3,df=5),ncol=3) Sigmas <- sm_vcov(X) ## Not run: if (require(sandwich)) { Sigmas <- sm_vcov(X,vcov.func=vcovHC) } ## End(Not run) # add some autocorrelation to X Xf <- filter(X,c(0.2),"recursive") colnames(Xf) <- colnames(X) Sigmas <- sm_vcov(Xf) ## Not run: if (require(sandwich)) { Sigmas <- sm_vcov(Xf,vcov.func=vcovHAC) } ## End(Not run) ```