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Portfolio optimization using a parsimonious multivariate GARCH model: application to the Brazilian stock market

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Author Info

  • João Caldeira

    ()
    (Federal University of Rio Grande do Sul)

  • Guilherme Moura

    ()
    (Federal University of Santa Catarina)

  • André A.P. Santos

    ()
    (Department of Economics, Federal University of Santa Catarina)

Abstract

We apply a parsimonious multivariate GARCH speci cation based on the Fama-French-Carhart factor model to generate high-dimensional conditional covariance matrices and to obtain shortselling-constrained and unconstrained minimum variance portfolios. An application involving 61 stocks traded on the S~ao Paulo stock exchange (BM&FBovespa) shows that the proposed speci cation delivers less risky portfolios on an out-of-sample basis in comparison to several benchmark models, including existing factor approaches.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 1848-1857

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Handle: RePEc:ebl:ecbull:eb-12-00293

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Keywords: portfolio optimization; forecasting; performance evaluation; Sharpe ratio;

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