This paper applies minimum variance portfolio optimization to the Baltic equity markets and describes the out-of-sample performance of the optimized portfolios. The sample covariance matrix enhanced by Bayesian shrinkage procedure is employed to determine portfolio weights. The empirical results show that in the long run Baltic minimum variance portfolios have 20-30% lower volatility without the expense of lower returns compared to capitalization weighted market indices. Although such

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... underperform the market indices in terms of returns during market upturns, they significantly outperform in a downtrend. Conclusions suggest that use of minimum variance portfolio optimization may substantially improve the investment performance of Baltic equity markets' participants.