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Portfolio Management under Asymmetric Dependence and Distribution

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  • Stefan Hlawatsch

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Peter Reichling

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

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    Abstract

    Aim of our paper is to analyze the enhancement of portfolio management by using more sophisticated assumptions about distributions and dependencies of stock returns. We assume a skewed t-distribution of the returns according to Azzalini and Capitanio (2003) and a dependency structure following a Clayton copula. The risk measure applied to our portfolio selection changed from traditional portfolio variance to downside-oriented conditional value-at-risk. The empirical results show a superior performance of our approach compared to the Markowitz approach and to the approach proposed by Hatherley and Alcock (2007) on a risk-adjusted basis. The approach is applied on daily stock returns of 16 stocks of the EURO STOXX 50.

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    File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2010/2010_17.pdf
    File Function: First version, 2010
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    Bibliographic Info

    Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 100017.

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    Length: 28 pages
    Date of creation: Jul 2010
    Date of revision:
    Handle: RePEc:mag:wpaper:100017

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    Related research

    Keywords: Asymmetric Dependency; Copula; Skewed t-Distribution; Conditional Value-at-Risk; Portfolio Optimization;

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