Optimal portfolio choice with dependence structure

• Main Authors: Ting,Sheng-Yu, 丁聖祐
• Other Authors: Lee,Mei-Shing
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/96537362653264687609

碩士 === 國立臺北大學 === 統計學系 === 98 === A vast amount of empirical evidence demonstrates that correlations between international equity returns are higher during bear markets than during bull markets. Moreover, equity returns generally exhibit leptokurtic behaviors, i.e. equity returns are negatively skewed and fat tails. These phenomenons imply that due to increased dependence during bear markets and negatively skewed returns, investors might lose the benefits of diversification when such benefits are most valuable. In this study, an important issue is how dependence between international equity returns can be measured when equity returns are non-normal. We apply the skewed t GARCH model for negatively skewed and fat tails returns, and we use the time-varying conditional Copula to measure conditional dependence in a GARCH context. The use of Copulas makes it possible to separate the dependence model from the marginal distributions. This paper applies above methodology to the weekly returns of G7 (U.S.、Germany、U. K.、Japan、Canada、France、Italy) and BRIC (Brazil、Russia、India、China). We solve the optimal investment problem in the presence of asymmetric dependence and skewness for investors with constant relative risk aversion (CRRA) preferences. We consider both unconstrained and short sales constrained estimates of the optimal portfolio weight. For investors with unconstrained or short sales constrained, we find that the model capturing asymmetric dependence and skewness yield better portfolio performance than the bivariate normal model.