Portfolio optimization using a parsimonious multivariate GARCH model: application to the Brazilian stock market

João Caldeira (), Guilherme Moura () and Andre Santos ()
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João Caldeira: Federal University of Rio Grande do Sul

Economics Bulletin, 2012, vol. 32, issue 3, 1848-1857

Abstract: We apply a parsimonious multivariate GARCH speci cation based on the Fama-French-Carhart factor model to generate high-dimensional conditional covariance matrices and to obtain shortselling-constrained and unconstrained minimum variance portfolios. An application involving 61 stocks traded on the S~ao Paulo stock exchange (BM&FBovespa) shows that the proposed speci cation delivers less risky portfolios on an out-of-sample basis in comparison to several benchmark models, including existing factor approaches.

Keywords: portfolio optimization; forecasting; performance evaluation; Sharpe ratio (search for similar items in EconPapers)
JEL-codes: C5 G1 (search for similar items in EconPapers)
Date: 2012-07-03
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