Multistep Predictions from Multivariate ARMA-GARCH Models and their Value for Portfolio Management

Hlouskova, Jaroslava and Schmidheiny, Kurt and Wagner, Martin (2002) Multistep Predictions from Multivariate ARMA-GARCH Models and their Value for Portfolio Management. Universität Bern, Volkswirtschaftliches Institut, Diskussionsschriften Vol. 2002 No. 02-12. , 29 p.

[img]
Preview
Text
oa9.pdf - Published Version

Download (249kB) | Preview

Abstract or Table of Contents

In this paper we derive the closed form solution for multistep predictions of the conditional means and their covariances from multivariate ARMA-GARCH models. These are useful e.g. in mean variance portfolio analysis when the rebalancing frequency is lower than the data frequency. In this situation the conditional mean and covariance matrix of the sum of the higher frequency returns until the next rebalancing period is required as input in the mean variance portfolio problem. The closed form solution for this quantity is derived as well. We assess the empirical value of the result by evaluating and comparing the performance of quarterly and monthly rebalanced portfolios using monthly MSCI index data across a large set of ARMA-GARCH models. The results forcefully demonstrate the substantial value of multistep predictions for portfolio management.

Item Type: Discussion/ Working Paper (Unspecified)
Keywords: Multivariate ARMA-GARCH models, Volatility forecasts, Portfolio optimization, Minimum variance portfolio
Classification Codes (e.g. JEL): C32, C61, G11
Research Groups: Financial Markets and Econometrics
Status: Published
Date Deposited: 06 Oct 2016 10:36
Last Modified: 06 Oct 2016 10:36
URI: http://irihs.ihs.ac.at/id/eprint/4082

Actions (login required)

View Item View Item