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Orthogonal GARCH matrixes in the active portfolio management of defined benefit pension plans: A test for Michoacán

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  • Oscar De la Torre Torres.

    (Universidad Michoacana de San Nicolás de Hidalgo.)

Abstract

This paper presents the usefulness of an active portfolio management process with orthogonal garch (ogarch) matrixes in order to achieve a 7.5% actuarial target return in defined benefit pension funds such as the Dirección de Pensiones Civiles del Estado de Michoacán. To prove this, four discrete event simulations were performed using, in the first scenario, a passive portfolio management process with a target position rebalancing discipline and, in the other three, an active portfolio management with a range portfolio rebalancing one. In these last three simulations, a constant covariance, a Gaussian distribution ogarch and a Student's t-distribution ogarch covariance matrix were used. The attained results suggest that the Student's t-distribution ogarch matrix is the most suitable for the investment process.

Suggested Citation

  • Oscar De la Torre Torres., 2013. "Orthogonal GARCH matrixes in the active portfolio management of defined benefit pension plans: A test for Michoacán," Economía: teoría y práctica, Universidad Autónoma Metropolitana, México, vol. 39(2), pages 119-144, Julio-Dic.
    • Handle: RePEc:ety:journl:v:39:y:2013:i:2:p:119-144
    DOI: 10.24275/ETYPUAM/NE/392013/DelaTorre
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    References listed on IDEAS

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    More about this item

    Keywords

    portfolio choice; asset pricing; financial forecasting and simulation; hypothesis testing.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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