Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
958698 | Journal of Empirical Finance | 2009 | 7 Pages |
Abstract
This paper derives the closed form solution for multistep predictions of the conditional means and covariances for multivariate ARMA-GARCH models. These predictions 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 the conditional covariance matrix of the cumulated higher frequency returns are required as inputs in the mean-variance portfolio problem. The empirical value of the result is evaluated by comparing the performance of quarterly and monthly rebalanced portfolios using monthly MSCI index data across a large set of GARCH models. Using correct multistep predictions generally results in lower risk and higher returns.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jaroslava Hlouskova, Kurt Schmidheiny, Martin Wagner,