publication . Article . Preprint . 2013

On the Benefits of Equicorrelation for Portfolio Allocation

Adam Clements; Ayesha Scott; Annastiina Silvennoinen;
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  • Published: 11 Dec 2013 Journal: Journal of Forecasting, volume 34, pages 507-522 (issn: 0277-6693, Copyright policy)
  • Publisher: Wiley
Abstract
The importance of modelling correlation has long been recognised in the field of portfolio management with large dimensional multivariate problems are increasingly becoming the focus of research. This paper provides a straightforward and commonsense approach toward investigating a number of models used to generate forecasts of the correlation matrix for large dimensional problems. We find evidence in favour of assuming equicorrelation across various portfolio sizes, particularly during times of crisis. During periods of market calm however, the suitability of the constant conditional correlation model cannot be discounted especially for large portfolios. A portf...
Subjects
free text keywords: Volatility, multivariate GARCH, portfolio allocation, Replicating portfolio, Black–Litterman model, Post-modern portfolio theory, Portfolio optimization, Economics, Portfolio, Actuarial science, Modern portfolio theory, Volatility (finance), Econometrics, Project portfolio management, jel:C22, jel:G11, jel:G17
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publication . Article . Preprint . 2013

On the Benefits of Equicorrelation for Portfolio Allocation

Adam Clements; Ayesha Scott; Annastiina Silvennoinen;