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Global European portfolio construction: Does a changing volatility structure matter?

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  • Wolfgang Polasek
  • Momtchil Pojarliev

Abstract

We propose a multivariate time series model to forecast the returns and volatilities of 15 European financial markets. Using the approach of mean‐variance portfolios we develop several strategies which are based on the predictions of high‐dimensional VAR‐GARCH models for future volatilities. We explore the value of volatility timing strategies by simplifying the forecasting model. One approach for information blocking is based on factor analysis for the returns. Finally we discuss if multivariate volatility timing strategies are successful for beating the benchmark index (the MSCI Europe index). Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Wolfgang Polasek & Momtchil Pojarliev, 2004. "Global European portfolio construction: Does a changing volatility structure matter?," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 20(3), pages 265-280, July.
    • Handle: RePEc:wly:apsmbi:v:20:y:2004:i:3:p:265-280
    DOI: 10.1002/asmb.523
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    Cited by:

    1. Ouatik El-Alaoui, AbdelKader & Ismath Bacha, Obiyathulla & Masih, Mansur & Asutay, Mehmet, 2018. "Does low leverage minimise the impact of financial shocks? New optimisation strategies using Islamic stock screening for European portfolios," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 160-184.
    2. el Alaoui, AbdelKader & Masih, Mansur & Bacha, Obiyathulla & Asutay, Mehmet, 2014. "Leverage, return, volatility and contagion: Evidence from the portfolio framework," MPRA Paper 57726, University Library of Munich, Germany.
    3. Maria Elena De Giuli & Dennis Montagna & Federica Naldi & Alessandra Tanda, 2019. "Enhance and Protect Portfolio Returns: A Dynamic Put Spread Optimization," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(12), pages 1-66, December.

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