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Portfolio selection based on predictive joint return distribution |
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| Authors: | Cuixia Jiang Xiaoyi Ding Xi Liu Yezheng Liu |
| Affiliation: | 1. School of Management, Hefei University of Technology, Hefei, PR China;2. Key Laboratory of Process Optimization and Intelligent Decision-making of Ministry of Education, Hefei, PR China;3. Department of Mathematics, Brunel University London, Middlesex, UK |
| Abstract: | A predictive joint return distribution can provide more useful information than moment-based risk measures in portfolio selection. This article develops a D-vine copula-CAViaR method to estimate and predict the joint probability distribution of multiple financial returns. Furthermore, we construct a portfolio model via the generalized Omega ratio inferred from the predicted joint return distribution. The superiority of our method is illustrated through an empirical application on five international stock market indices. |
| Keywords: | Portfolio selection CAViaR vine copula D-vine copula-CAViaR generalized omega ratio |