Portfolio Management under Asymmetric Dependence and Distribution

Stefan Hlawatsch () and Peter Reichling ()
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Stefan Hlawatsch: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg
Peter Reichling: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg

No 100017, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: Aim of our paper is to analyze the enhancement of portfolio management by using more sophisticated assumptions about distributions and dependencies of stock returns. We assume a skewed t-distribution of the returns according to Azzalini and Capitanio (2003) and a dependency structure following a Clayton copula. The risk measure applied to our portfolio selection changed from traditional portfolio variance to downside-oriented conditional value-at-risk. The empirical results show a superior performance of our approach compared to the Markowitz approach and to the approach proposed by Hatherley and Alcock (2007) on a risk-adjusted basis. The approach is applied on daily stock returns of 16 stocks of the EURO STOXX 50.

Keywords: Asymmetric Dependency; Copula; Skewed t-Distribution; Conditional Value-at-Risk; Portfolio Optimization (search for similar items in EconPapers)
JEL-codes: C01 C13 C15 C16 C46 G11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-07
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:100017

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