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Portfolio allocation in transition economies

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Author Info
ROCKINGER, Michael
JONDEAU, Eric (ERUDITE, Universite Paris XII Val de Marne)

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Abstract

Designing an investment strategy in transition economies is a difficult task because stock-markets opened through time, time series are short, and there is little guidance how to obtain expected returns and covariance matrices necessary for mean-variance portfolio allocation. Also, structural breaks are likely to occur. We develop an ad-hoc investment strategy with a flavor of Bayesian learning. An observation is that often an extreme event will herald a new state of the economy. We use this observation to re-initialize learning when unlikely returns materialize. By using a Cornell benchmark, we are able to show the usefulness of our strategy for certain types of re-initializations.

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Publisher Info
Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 740.

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Length: 36 pages
Date of creation: 01 Oct 2001
Date of revision:
Handle: RePEc:ebg:heccah:0740

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Postal: HEC Paris, 78351 Jouy-en-Josas cedex, France
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Related research
Keywords: mean-variance allocation; portfolio choice; transition economies;

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
F30 - International Economics - - International Finance - - - General
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
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