How to Reduce Extreme Risk of the U.S. Tourism Indices? - Minimum-CVaR Portfolio Approach

Dejan Zivkov, Bojana Kovacevic-Berlekovic, Dušan Kicovic and Jasmina Duraskovic
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Dejan Zivkov: Novi Sad school of business, Serbia
Bojana Kovacevic-Berlekovic: Novi Sad school of business, Serbia
Dušan Kicovic: College of tourism, Academy of applied studies Belgrade, Serbia
Jasmina Duraskovic: Academy of applied technical studies, Belgrade, Serbia

Czech Journal of Economics and Finance (Finance a uver), 2023, vol. 73, issue 1, 81-103

Abstract: This paper combines two tourism indices from the U.S. with six auxiliary assets in a multivariate portfolio in order to minimize extreme risk of the indices. Extreme risk is measured by the conditional Value-at-Risk metric. We construct the two types of portfolios – one is the minimum-risk portfolio, and the other one has the 50% constraint on the tourism indices. Also, we determine the pre-COVID and COVID subsamples via the modified ICSS algorithm. The results indicate that the tourism indices are mostly removed from the minimum-risk portfolios because they are among the riskiest assets. Because of that, the tourism-dominated portfolios gain greater importance. Gold has the highest share as an auxiliary asset in the tourism-dominated portfolios because gold has relatively low risk, but more importantly, gold has very low pairwise correlation with the tourism indices. In the COVID period, the share of gold increases compared to the pre-COVID period, which means that the best hedging abilities of gold comes to the fore in a crisis. High risk of the tourism indices is reduced more than 40% in the tourism-dominated portfolios.

Keywords: tourism indices; extreme risk; COVID crisis; minimum-CVaR portfolio optimization (search for similar items in EconPapers)
JEL-codes: G11 G32 Z33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:73:y:2023:i:1:p:81-103

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