Abstract #300531

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JSM 2002 Abstract #300531
Activity Number: 355
Type: Contributed
Date/Time: Wednesday, August 14, 2002 : 2:00 PM to 3:50 PM
Sponsor: Business & Economics Statistics Section*
Abstract - #300531
Title: Portfolio Construction by Volatility Forecasts: Does the Covariance Structure Matter?
Author(s): Wolfgang Polasek*+
Affiliation(s): University Bolzano
Address: Via Sernesi 1, Bolzano, , I-39100, Italy
Keywords: Asymmetric GARCH Model ; Mean-Variance Portfolio ; Volatility Forecasts
Abstract:

This paper explores the performance of a global minimum variance (GMV) portfolio in dependence of the structure of the covariance matrix and the type of volatility model. Different information sets of time series are used to predict the future covariance matrix. We investigate diagonal portfolio strategies based on univariate and multivariate GARCH models for a portfolio consisting of North America, Europe, and the Pacific region. The evaluation is based on a daily out-of-sample comparison from 25 May 1998 until 3 April 2000. We find that variance forecasts are more important than covariance forecasts and that multivariate volatility models yield better results than univariate volatility models.

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Revised March 2002