The Copula ADCC-GARCH model can help PIIGS to fly

Recent crises have revived the interest of researchers to investigate the economic characteristics of regions such as the PIIGS, which have been the Eurozone's most troubled economies. We show that it is possible to obtain benefits from investing in these markets by using time-varying returns and volatility forecasts from a Copula-ADCC-GARCH with structural breaks model. The results show that the use of this approach leads to a significant improvement of the Sharpe ratio when compared to the naïve strategy and the optimal portfolios based on a simple multivariate GARCH approach such as the DCC model, even when different transaction costs are considered.