35 research outputs found
Statistical Properties of Cross-Correlation in the Korean Stock Market
We investigate the statistical properties of the correlation matrix between
individual stocks traded in the Korean stock market using the random matrix
theory (RMT) and observe how these affect the portfolio weights in the
Markowitz portfolio theory. We find that the distribution of the correlation
matrix is positively skewed and changes over time. We find that the eigenvalue
distribution of original correlation matrix deviates from the eigenvalues
predicted by the RMT, and the largest eigenvalue is 52 times larger than the
maximum value among the eigenvalues predicted by the RMT. The
coefficient, which reflect the largest eigenvalue property, is 0.8, while one
of the eigenvalues in the RMT is approximately zero. Notably, we show that the
entropy function with the portfolio risk for the original
and filtered correlation matrices are consistent with a power-law function,
, with the exponent and
those for Asian currency crisis decreases significantly
A Closed-Form Solution of the Multi-Period Portfolio Choice Problem for a Quadratic Utility Function
In the present paper, we derive a closed-form solution of the multi-period
portfolio choice problem for a quadratic utility function with and without a
riskless asset. All results are derived under weak conditions on the asset
returns. No assumption on the correlation structure between different time
points is needed and no assumption on the distribution is imposed. All
expressions are presented in terms of the conditional mean vectors and the
conditional covariance matrices. If the multivariate process of the asset
returns is independent it is shown that in the case without a riskless asset
the solution is presented as a sequence of optimal portfolio weights obtained
by solving the single-period Markowitz optimization problem. The process
dynamics are included only in the shape parameter of the utility function. If a
riskless asset is present then the multi-period optimal portfolio weights are
proportional to the single-period solutions multiplied by time-varying
constants which are depending on the process dynamics. Remarkably, in the case
of a portfolio selection with the tangency portfolio the multi-period solution
coincides with the sequence of the simple-period solutions. Finally, we compare
the suggested strategies with existing multi-period portfolio allocation
methods for real data.Comment: 38 pages, 9 figures, 3 tables, changes: VAR(1)-CCC-GARCH(1,1) process
dynamics and the analysis of increasing horizon are included in the
simulation study, under revision in Annals of Operations Researc
Statistical inference of the efficient frontier for dependent asset returns
Asset allocation, Mean–variance efficient frontier, Optimal portfolios, Asymptotic normality,
Comparison of different estimation techniques for portfolio selection
Portfolio analysis, Mean-variance analysis, Estimation of portfolio weights, Shrinkage estimation,
Algorithmic Need for Subcopulas
One of the efficient ways to describe the dependence between random variables is by describing the corresponding copula. For continuous distributions, the copula is uniquely determined by the corresponding distribution. However, when the distributions are not continuous, the copula is no longer unique, what is unique is a subcopula, a function C(u,v) that has values only for some pairs (u,v). From the purely mathematical viewpoint, it may seem like subcopulas are not needed, since every subcopula can be extended to a copula. In this paper, we prove, however, that from the algorithmic viewpoint, it is, in general, not possible to always generate a copula. Thus, from the algorithmic viewpoint, subcopulas are needed