Strategic asset allocation by mixing shrinkage, vine copula and market equilibrium

Zhang, F.; Zhang, Z.

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.

Citation

Zhang, F., & Zhang, Z. (2018). Strategic asset allocation by mixing shrinkage, vine copula and market equilibrium. Journal of Forecasting, 37(3), 340-351. https://doi.org/10.1002/for.2506

• Journal Article Type: Article
• Acceptance Date: Nov 16, 2017
• Online Publication Date: Jan 3, 2018
• Publication Date: Apr 1, 2018
• Deposit Date: Nov 17, 2017
• Publicly Available Date: Jan 3, 2020
• Journal: Journal of Forecasting
• Print ISSN: 0277-6693
• Electronic ISSN: 1099-131X
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 37
• Issue: 3
• Pages: 340-351
• DOI: https://doi.org/10.1002/for.2506
• Public URL: https://durham-repository.worktribe.com/output/1343594