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

Zhang, F.; Zhang, Z.

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


Authors



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

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Copyright Statement
This is the accepted version of the following article: Zhang, F. & Zhang, Z. (2018). Strategic asset allocation by mixing shrinkage, vine copula and market equilibrium. Journal of Forecasting, which has been published in final form at https://doi.org/10.1002/for.2506. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.







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