Dynamic Portfolio Selection on Croatian Financial Markets: MGARCH Approach

Tihana Škrinjarić and Šego Boško ()
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Šego Boško: Faculty of Economics and Business, University of Zagreb, Croatia

Business Systems Research, 2016, vol. 7, issue 2, 78-90

Abstract: Background: Investors on financial markets are interested in finding trading strategies which could enable them to beat the market. They always look for best possibilities to achieve above-average returns and manage risks successfully. MGARCH methodology (Multivariate Generalized Autoregressive Conditional Heteroskedasticity) makes it possible to model changing risks and return dynamics on financial markets on a daily basis. The results could be used in order to enhance portfolio formation and restructuring over time.Objectives: This study utilizes MGARCH methodology on Croatian financial markets in order to enhance portfolio selection on a daily basis. Methods/Approach: MGARCH methodology is applied to the stock market index CROBEX, the bond market index CROBIS and the kuna/euro exchange rate in order to model the co-movements of returns and risks on a daily basis. The estimation results are then used to form successful portfolios.Results: Results indicate that using MGARCH methodology (the CCC and the DCC model) as guidance when forming and rebalancing a portfolio contributes to less portfolio volatility and greater cumulated returns compared to strategies which do not take this methodology into account.Conclusions: It is advisable to use MGARCH methodology when forming and rebalancing portfolios in terms of portfolio selection.

Keywords: Zagreb Stock Exchange; DCC and CCC GARCH; risk hedging; volatility (search for similar items in EconPapers)
JEL-codes: C58 G12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bit:bsrysr:v:7:y:2016:i:2:p:78-90

DOI: 10.1515/bsrj-2016-0014

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