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Optimization of portfolio management based on vector autoregression models and multivariate volatility models

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Listed author(s):
  • Habrov, Vladimir

    ()

    (Ministry of Finance of the Russian Federation)

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    Abstract

    Theoretical part of this article examines the impact of information on the stochastic model of generating returns of assets (vector autoregressive model) on the optimal structure of assets allocation of the investment portfolio. Article includes theoretical basis for construction and characteristics of the optimal portfolios. The results of simulation showed that the characteristics of the studied portfolios under certain conditions may significantly exceed the performance of classic mean-variance portfolios. The practical part examines the characteristics of optimal portfolios whose asset returns are predicted by the VAR models and the covariance matrixes of the assets using multivariate models of volatility. The results of practical studies have shown that the model volatility significantly affect the characteristics of optimal portfolios, and also confirmed the need and importance of investigating the errors characteristics of forecasts of portfolio returns.

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    File URL: http://pe.cemi.rssi.ru/pe_2012_4_35-62.pdf
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    Article provided by Publishing House "SINERGIA PRESS" in its journal Applied Econometrics.

    Volume (Year): 28 (2012)
    Issue (Month): 4 ()
    Pages: 35-62

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    Handle: RePEc:ris:apltrx:0195
    Contact details of provider: Web page: http://appliedeconometrics.cemi.rssi.ru/

    Keywords: portfolio theory; vector autoregression model; multivariate volatility models; quadratic programming.;

    Find related papers by JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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    Cited by:

    1. Lakshina, Valeriya, 2014. "Is it possible to break the «curse of dimensionality»? Spatial specifications of multivariate volatility models," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 36(4), pages 61-78.

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