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Strategic asset allocation by mixing shrinkage, vine-copula and market equilibrium

Zhang, F and Zhang, Z (2018) Strategic asset allocation by mixing shrinkage, vine-copula and market equilibrium. Journal of Forecasting, 37 (3). pp. 340-351. ISSN 0277-6693

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Abstract

We propose a new portfolio optimization method combining the merits of the shrinkage estimation (Jorion, 1985, 1986 and 1991), vine-copula structure (Aas and Berg, 2009), and Black-Litterman model (Black and Litterman, 1991 and 1992). It is useful for many investors to satisfy simultaneously the three investment objectives, estimation sensitivity, asymmetric risks appreciation and portfolio stability. A typical investor with such objectives is a sovereign wealth fund (SWF). We use China’s SWF as an example to empirically test the method based on a 15-asset strategic asset allocation problem. Robustness tests using sub-samples not only show the method's overall effectiveness, but also manifest that the function of each component is as expected.

Item Type: Article
Additional Information: This is the accepted version of the following article:Zhang F, Zhang Z.Strategic asset allocation by mixing shrinkage, vinecopula and market equilibrium. Journal ofForecasting. 2018;37:340–351, which has been published in final form at https://doi.org/10.1002/for.2506
Uncontrolled Keywords: 1403 Econometrics
Subjects: H Social Sciences > HF Commerce > HF5001 Business
H Social Sciences > HF Commerce
Divisions: Liverpool Business School
Publisher: Wiley
Date Deposited: 15 Dec 2017 12:02
Last Modified: 23 Apr 2018 13:16
URI: http://researchonline.ljmu.ac.uk/id/eprint/7725

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