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Intradaily dynamic portfolio selection

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Listed author(s):
  • Bauwens, Luc
  • Ben Omrane, Walid
  • Rengifo, Erick

Abstract

A portfolio selection model which allocates a portfolio of currencies by maximizing the expected return subject to Value-at-Risk (VaR) constraint is designed and implemented. Based on an econometric implementation using intradaily data, the optimal portfolio allocation is forecasted at regular time intervals. For the estimation of the conditional variance from which the VaR is computed, univariate and multivariate GARCH models are used. Model evaluation is done using two economic criteria and two statistical tests. The result for each model is given by the best forecasted intradaily investment recommendations in terms of the optimal weights of the currencies in the risky portfolio. The results show that estimating the VaR from multivariate GARCH models improves the results of the forecasted optimal portfolio allocation, compared to using a univariate model.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167-9473(09)00226-6
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Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

Volume (Year): 54 (2010)
Issue (Month): 11 (November)
Pages: 2400-2418

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Handle: RePEc:eee:csdana:v:54:y:2010:i:11:p:2400-2418
Contact details of provider: Web page: http://www.elsevier.com/locate/csda

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Cited by:

  1. Guidolin, Massimo & Hyde, Stuart, 2012. "Simple VARs cannot approximate Markov switching asset allocation decisions: An out-of-sample assessment," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3546-3566.
  2. Kotchoni, Rachidi, 2012. "Applications of the characteristic function-based continuum GMM in finance," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3599-3622.
  3. Boudt, Kris & Cornelissen, Jonathan & Croux, Christophe, 2012. "Jump robust daily covariance estimation by disentangling variance and correlation components," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 2993-3005.

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