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Nonparametric Approach to Portfolio Diversification: The Case of Australian Equity Market - Un approccio non-parametrico alla diversificazione del portafoglio: il caso del mercato azionario australiano

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This study investigates the portfolio diversification possibilities among Australian sectoral, size and style indexes and between Australian aggregate equity index and selected international indexes. Two analytical methods are used – nonparametric cointegration that appears to be the most appropriate for the financial data analysis, and principal component analysis (PCA) that is suitable for detecting relations among a large number of variables and for clustering co-moving variables. Having identified linear and nonlinear unit roots in the time series data we show that based on Bierens’ nonparametric cointegration the number of cointegrating relations between respective indexes increases (and the portfolio diversification opportunities diminish) in the post-GFC period (2007-2012) relative to the historic average (1992-2012). Regarding sectoral diversification, the PCA results suggest that sectoral relations underwent minor changes in the post-GFC period with few additional diversification opportunities appearing. - In questo studio si esaminano le possibilità di diversificazione del portafoglio tra indici australiani settoriali, dimensionali e di stile di gestione e tra indici aggregati australiani e indici internazionali. Vengono usati due metodi – la cointegrazione non-parametrica, che sembra essere la più appropriata per l’analisi dei dati finanziari, e l’analisi delle componenti principali (PCA) che consente di individuare le relazioni esistenti tra numerose variabili e di individuare gruppi di variabili mobili. Dopo aver identificato le radici unitarie lineari e non lineari nei dati time series lo studio mostra che sulla base della cointegrazione non-parametrica di Bierens il numero di relazioni cointegrate tra i rispettivi indici aumenta (e le opportunità derivanti dalla diversificazione del portafoglio diminuiscono) nel periodo post-GFC (2007-2012) relativamente alla media storica (1992-2012). Per quanto riguarda la diversificazione settoriale, i risultati della PCA suggeriscono che relazioni settoriali hanno subito cambiamenti modesti nel periodo post-GFC con poche opportunità ulteriori di diversificazione.

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  • Trofimov, Ivan D., 2013. "Nonparametric Approach to Portfolio Diversification: The Case of Australian Equity Market - Un approccio non-parametrico alla diversificazione del portafoglio: il caso del mercato azionario australian," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 66(1), pages 87-112.
    • Handle: RePEc:ris:ecoint:0678
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    More about this item

    Keywords

    Nonparametric Cointegration; Principal Component Analysis; Portfolio Diversification; Non-linear Unit Root;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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