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Behavior of Covariance Matrices with Equi-Correlation Approach

Author

Listed:
  • R. REYTIER

    (ECE, Graduate School of Engineering, Paris)

  • A. Blanes

    (ECE Graduate School of Engineering, Paris)

  • Q. Gaucher

    (ECE, Graduate School of Engineering, Paris)

  • S. Thiam

    (ECE, Graduate School of Engineering, Paris)

  • P. Debled

    (ECE, Graduate School of Engineering, Paris)

Abstract

Funds and asset managers are increasingly concerned with quantitative and econometric model in order to apply their portfolio models. The main goal of this publication is to study the behavior and the proportions of a stock portfolio from CAC All-Tradable with these kinds of models and compare the results with the historical approach. A GARCH (1,1) process has been used for modelling each asset volatility and Engle dynamic equi-correlation model to forecast covariance matrices. From a small amount of underlying values, the question is raised whether forecasted covariance matrix is more relevant than traditional variance-covariance matrix in a context of minimum variance portfolio model.

Suggested Citation

  • R. REYTIER & A. Blanes & Q. Gaucher & S. Thiam & P. Debled, 2015. "Behavior of Covariance Matrices with Equi-Correlation Approach," Proceedings of International Academic Conferences 2805027, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:2805027
    as

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    File URL: https://iises.net/proceedings/19th-international-academic-conference-florence/table-of-content/detail?cid=28&iid=116&rid=5027
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Christoffersen, Peter & Errunza, Vihang & Jacobs, Kris & Jin, Xisong, 2014. "Correlation dynamics and international diversification benefits," International Journal of Forecasting, Elsevier, vol. 30(3), pages 807-824.
    2. Massimiliano Caporin & Michael McAleer, 2012. "Do We Really Need Both Bekk And Dcc? A Tale Of Two Multivariate Garch Models," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 736-751, September.
    3. Aboura, Sofiane & Chevallier, Julien, 2014. "Volatility equicorrelation: A cross-market perspective," Economics Letters, Elsevier, vol. 122(2), pages 289-295.
    4. Luis García-Álvarez & Richard Luger, 2011. "Dynamic Correlations, Estimation Risk, and Porfolio Management During the Financial Crisis," Working Papers wp2011_1103, CEMFI, revised Sep 2011.
    5. repec:dau:papers:123456789/12323 is not listed on IDEAS
    6. Engle, Robert F, 2000. "Dynamic Conditional Correlation - A Simple Class of Multivariate GARCH Models," University of California at San Diego, Economics Working Paper Series qt56j4143f, Department of Economics, UC San Diego.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Volatility - Correlation ? Equi-Correlation - GARCH (1; 1) - Portfolio Selection - Asset Allocation- Covariance Matrix ? Minimum Variance Portfolio.;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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