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The Copula ADCC-GARCH model can help PIIGS to fly

José Luis Miralles-Quirós and María del Mar Miralles-Quirós

Journal of International Financial Markets, Institutions and Money, 2017, vol. 50, issue C, 1-12

Abstract: Recent crises have revived the interest of researchers to investigate the economic characteristics of regions such as the PIIGS, which have been the Eurozone’s most troubled economies. We show that it is possible to obtain benefits from investing in these markets by using time-varying returns and volatility forecasts from a Copula-ADCC-GARCH with structural breaks model. The results show that the use of this approach leads to a significant improvement of the Sharpe ratio when compared to the naïve strategy and the optimal portfolios based on a simple multivariate GARCH approach such as the DCC model, even when different transaction costs are considered.

Keywords: PIIGS; Copulas; Multivariate GARCH models; Optimization problems (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 (search for similar items in EconPapers)
Date: 2017
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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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Handle: RePEc:eee:intfin:v:50:y:2017:i:c:p:1-12