 Cross-industry asset allocation with the spatial interaction on multiple risk transmission channelsNa Chen and Xiu Jin The North American Journal of Economics and Finance, 2023, vol. 67, issue C Abstract: Taking into consideration the real link and information risk transmission channels, we used a spatial econometric approach to construct an economic distance-based spatial weight matrix, which can capture the spatial interaction across industries, and built a return estimation model with spatial interaction using the matrix. On this basis, we derived the covariance matrix and constructed the cross-industry asset allocation model. The empirical results showed that 1) the spatial interaction has a strong explanatory power to return and integrating the spatial interaction on multiple risk transmission channels can improve the effectiveness of the return estimation model; 2) the covariance matrix includes unsystematic risk (idiosyncratic risk) and systematic risk (market risk and cross-industry spillover risk); 3) the asset allocation model with spatial interaction can improve the performance of the portfolio and provide a valuable reference for investors' risk management and investment decision. Keywords: Asset allocation; Spatial capital asset pricing model; Spatial interaction; Systematic risk; Risk spillover channel (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:67:y:2023:i:c:s106294082300058x DOI: 10.1016/j.najef.2023.101935 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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