Strategic asset allocation by mixing shrinkage,vine copula and market equilibrium |
| |
Authors: | Fan Zhang Zhichao Zhang |
| |
Affiliation: | 1. Liverpool Business School, Liverpool John Moores University, Liverpool, UK;2. Durham University Business School, Durham, UK |
| |
Abstract: | We propose a new portfolio optimization method combining the merits of the shrinkage estimation, vine copula structure, and Black–Litterman model. It is useful for many investors to satisfy simultaneously the three investment objectives: estimation sensitivity, asymmetric risks appreciation, and portfolio stability. A typical investor with such objectives is a sovereign wealth fund (SWF). We use China's SWF as an example to empirically test the method based on a 15‐asset strategic asset allocation problem. Robustness tests using subsamples not only show the method's overall effectiveness but also manifest that the function of each component is as expected. |
| |
Keywords: | asymmetric risk Bayesian forecast estimation risk portfolio management views blending |
|
|