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Comparison of Score-Driven Equity-Gold Portfolios During the COVID-19 Pandemic Using Model Confidence Sets

Author

Listed:
  • Ayala Astrid
  • Blazsek Szabolcs

    (Stetson-Hatcher School of Business, Mercer University, Macon, GA, USA)

  • Licht Adrian

    (School of Business, Universidad Francisco Marroquín, Guatemala City, Guatemala)

Abstract

Gold may have a hedge, safe haven, or diversifier property when added to stock portfolios. Motivated by the favorable statistical properties and out-of-sample performance of score-driven models, we investigate for equity-gold portfolios whether score-driven mean, volatility, and copula models can improve the performances of DCC (dynamic conditional correlation) portfolios, the naïve portfolio strategy, and the Standard & Poor’s 500 (S&P 500) index. We consider 2880 score-driven portfolio strategies. We use score-driven Clayton, rotated Clayton, Frank, Gaussian, Gumbel, rotated Gumbel, Plackett, and Student’s t copulas. We use several classical and score-driven models of marginal distribution. We use weekly, monthly, quarterly, semi-annual, and annual updates of portfolio weights. We use minimum-variance, maximum Sharpe ratio, and maximum utility function strategies. We use rolling data-windows for portfolio optimization for the COVID-19 investment period of February 2020 to September 2021. We classify competing portfolios by using a new robust multi-step model confidence set (MCS) test approach and provide evidence of the superiority of score-driven portfolios.

Suggested Citation

  • Ayala Astrid & Blazsek Szabolcs & Licht Adrian, 2023. "Comparison of Score-Driven Equity-Gold Portfolios During the COVID-19 Pandemic Using Model Confidence Sets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 27(5), pages 705-731, December.
    • Handle: RePEc:bpj:sndecm:v:27:y:2023:i:5:p:705-731:n:2
    DOI: 10.1515/snde-2022-0107
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    More about this item

    Keywords

    dynamic conditional score (DCS) models; generalized autoregressive score (GAS) models; score-driven copulas; equity-gold portfolios; model confidence set (MCS);
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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