Asset allocation with correlation: A composite trade-off
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http://www.sciencedirect.com/science/article/pii/S037722171730348X |
Metadades
Títol
Asset allocation with correlation: A composite trade-offData de publicació
2017-11-01Editor
ElsevierCita bibliogràfica
https://doi.org/10.1016/j.ejor.2017.04.015Tipus de document
info:eu-repo/semantics/articleVersió de l'editorial
http://www.sciencedirect.com/science/article/pii/S037722171730348XVersió
info:eu-repo/semantics/publishedVersionParaules clau / Matèries
Resum
We assess the ability of minimum-variance portfolio allocation strategies accounting for time-varying correlation between assets to provide performance benefits relative to an equally-weighted portfolio. Prior to ... [+]
We assess the ability of minimum-variance portfolio allocation strategies accounting for time-varying correlation between assets to provide performance benefits relative to an equally-weighted portfolio. Prior to transaction costs correlation-based strategies emphatically outperform the equally-weighted benchmark. This finding is strongest for short horizon correlation forecasts and attributed to dynamic correlation as opposed to variance forecasts. Thus, estimation error is not found to be the primary obstacle to successful portfolio optimization. Rather, frequent rebalancing and associated transaction costs pose a significant challenge. Limiting portfolio turnover through short-selling restrictions and greater rebalancing error tolerance results in regular outperformance of the correlation based strategies even for large transaction costs. Taken together, these findings provide evidence of a trade-off between optimal portfolio performance, forecasting horizon, rebalancing frequency and transaction costs. [-]
Publicat a
European Journal of Operational Research (2017), v. 262, Issue 3Proyecto de investigación
1) Science Foundation Ireland under Grant Numbers 16/SPP/3347 and 08/SRC/FM1389; 2) Irish Research Council under Grant Numbers GOIPD/2014/80 and REPRO/2015/109Drets d'accés
http://rightsstatements.org/vocab/CNE/1.0/
info:eu-repo/semantics/restrictedAccess
info:eu-repo/semantics/restrictedAccess
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