Realizing Correlations Across Asset Classes

Publikation: Working paperForskning

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  • rp18_37

    Forlagets udgivne version, 1,01 MB, PDF-dokument

We introduce a simple and intuitive approach of modeling and forecasting correlations for use in portfolio optimization. The model is composite in nature and consists of elements based on a bivariate realized volatility model. Importantly, our framework allows for volatility spill-overs between assets which provide an edge compared to competing models when forming portfolios. We apply the model to high-frequency data for commodity markets and demonstrate significant economic gains for an investor basing portfolio decisions on our modeling framework. This gain is significant in economic terms, even after imposing realistic constraints on short selling and portfolio turnover.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider52
StatusUdgivet - 19 dec. 2018
SerietitelCREATES Research Papers
Nummer2018-37

    Forskningsområder

  • Commodities, futures markets, portfolio selection, Realized Beta GARCH

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