Abstract #301724

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JSM 2003 Abstract #301724
Activity Number: 78
Type: Topic Contributed
Date/Time: Monday, August 4, 2003 : 8:30 AM to 10:20 AM
Sponsor: Section on Bayesian Stat. Sciences
Abstract - #301724
Title: Bayesian Portfolio Allocation Model on Asset Return
Author(s): Jun Ying*+ and Lynn Kuo
Companies: Indiana University-Purdue University Indianapolis and University of Connecticut
Address: 6204 Newberry Rd., Indianapolis, IN, 46256-3140,
Keywords: hierarchical Bayesian analysis ; Markov chain Monte Carlo ; portfolio allocation ; skewness and leptokurtosis ; stochastic volatility
Abstract:

The traditional portfolio allocation model is extended by incorporation of a stochastic volatility structure with skewness and leptokurtosis in the distribution of asset returns. A hierarchical Bayesian method is developed to simplify complicated problems by using a multilevel hierarchical structure. Both estimation and prediction are carried out by the Markov chain Monte Carlo method. Different models are then compared in terms of their cumulative portfolio returns with an optimal allocation scheme. Our empirical results show that the Bayesian portfolio allocation model improves future prediction upon the traditional model.

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