Multivariate GARCH models and the Black-Litterman approach for tracking error constrained portfolios: an empirical analysis
AbstractIn a typical tactical asset allocation setup, managers generally make their choices with the aim of beating a benchmark portfolio. In this context, the pure Markowitz (1959) strategy does not take two aspects into account: asset returns often show changes in volatility and managers' decisions depend on private information. This paper provides an empirical model for large-scale tactical asset allocation with multivariate GARCH estimates, given a tracking error constraint. Moreover, the Black and Litterman (1991) approach makes it possible to tactically manage the selected portfolio by combining information taken from the time-varying volatility model with some personal 'views' about asset returns.
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Bibliographic InfoArticle provided by Inderscience Enterprises Ltd in its journal Global Business and Economics Review.
Volume (Year): 10 (2008)
Issue (Month): 4 ()
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Web page: http://www.inderscience.com/browse/index.php?journalID=168
asset returns; tactical asset allocation; TAA; multivariate GARCH models; tracking error constraints; error-constrained portfolios; Black and Litterman approach.;
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- Giulio PALOMBA & Luca RICCETTI, 2011.
"Portfolio Frontiers with Restrictions to Tracking Error Volatility and Value at Risk,"
358, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Palomba, Giulio & Riccetti, Luca, 2012. "Portfolio frontiers with restrictions to tracking error volatility and value at risk," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2604-2615.
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