A TVM-Copula-MIDAS-GARCH model with applications to VaR-based portfolio selection |
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| Institution: | 1. Business School, Shandong Normal University, Jinan, Shandong, 250014, China;2. Center for Energy and Environmental Policy research, Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China;3. School of Economics & Management, Beihang University, Beijing 100191, China;1. Department of Economics, Universidade de Santiago de Compostela, Spain;2. Dipartimento di Statistica, Informatica, Applicazioni “G. Parenti”, University of Florence, Italy |
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| Abstract: | This paper develops a novel time-varying multivariate Copula-MIDAS-GARCH (TVM-Copula-MIDAS-GARCH) model with exogenous explanatory variables to model the joint distribution of returns. The model accounts for mixed frequency factors that affect the time-varying dependence structure of financial assets. Furthermore, we examine the effectiveness of the proposed model in VaR-based portfolio selection. We conduct an empirical analysis on estimating the 90%, 95%, 99% VaRs of the portfolio constituted of the Shanghai Composite Index, Shanghai SE Fund Index, and Shanghai SE Treasury Bond Index. The empirical results show that the proposed TVM-Copula-MIDAS-GARCH model is effective to investigate the nonlinear time-varying dependence among those three indices and performs better in portfolio selection. |
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| Keywords: | Time-varying multivariate copula Mixed data sampling MIDAS-Copula GARCH Portfolio VaR |
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