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Robust Portfolio Selection Based on Copula Change Analysis

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  • Yingwei Han
  • Ping Li
  • Jie Li
  • Sanmang Wu

Abstract

In this article, we construct a robust portfolio selection model based on dynamic copulas. We first use a type of dynamic copula, which contains copulas with time-varying parameters or sequence of copulas, to characterize the dynamic dependence between financial assets. Then, we use it for portfolio selection based on worst-case Conditional Value-at-Risk (WCVaR). In the empirical part we choose four representative assets from Chinese market to construct a macro asset allocation of portfolio and make the performance analysis. Results show that our method performs the best in out-of-sample tests when considering the dynamic dependence between assets and the uncertainty in the estimated model.

Suggested Citation

  • Yingwei Han & Ping Li & Jie Li & Sanmang Wu, 2020. "Robust Portfolio Selection Based on Copula Change Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(15), pages 3635-3645, December.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:15:p:3635-3645
    DOI: 10.1080/1540496X.2019.1567262
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