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Portfolio Management under Asymmetric Dependence and Distribution

Author

Listed:
  • Stefan Hlawatsch

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Peter Reichling

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

Aim of our paper is to analyze the enhancement of portfolio management by using more sophisticated assumptions about distributions and dependencies of stock returns. We assume a skewed t-distribution of the returns according to Azzalini and Capitanio (2003) and a dependency structure following a Clayton copula. The risk measure applied to our portfolio selection changed from traditional portfolio variance to downside-oriented conditional value-at-risk. The empirical results show a superior performance of our approach compared to the Markowitz approach and to the approach proposed by Hatherley and Alcock (2007) on a risk-adjusted basis. The approach is applied on daily stock returns of 16 stocks of the EURO STOXX 50.

Suggested Citation

  • Stefan Hlawatsch & Peter Reichling, 2010. "Portfolio Management under Asymmetric Dependence and Distribution," FEMM Working Papers 100017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:100017
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    File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2010/2010_17.pdf
    File Function: First version, 2010
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    Citations

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    Cited by:

    1. Brechmann Eike Christain & Czado Claudia, 2013. "Risk management with high-dimensional vine copulas: An analysis of the Euro Stoxx 50," Statistics & Risk Modeling, De Gruyter, vol. 30(4), pages 307-342, December.

    More about this item

    Keywords

    Asymmetric Dependency; Copula; Skewed t-Distribution; Conditional Value-at-Risk; Portfolio Optimization;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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