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

Author

Listed:
  • 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.

Suggested Citation

  • João Caldeira & Guilherme Moura & André A.P. Santos, 2012. "Portfolio optimization using a parsimonious multivariate GARCH model: application to the Brazilian stock market," Economics Bulletin, AccessEcon, vol. 32(3), pages 1848-1857.
  • Handle: RePEc:ebl:ecbull:eb-12-00293
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    portfolio optimization; forecasting; performance evaluation; Sharpe ratio;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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