Multivariate GARCH models and the Black-Litterman approach for tracking error constrained portfolios: an empirical analysis

Giulio Palomba ()

Global Business and Economics Review, 2008, vol. 10, issue 4, 379-413

Abstract: In a typical tactical asset allocation setup, managers generally make their choices with the aim of beating a benchmark portfolio. In this context, the pure Markowitz (1959) strategy does not take two aspects into account: asset returns often show changes in volatility and managers' decisions depend on private information. This paper provides an empirical model for large-scale tactical asset allocation with multivariate GARCH estimates, given a tracking error constraint. Moreover, the Black and Litterman (1991) approach makes it possible to tactically manage the selected portfolio by combining information taken from the time-varying volatility model with some personal 'views' about asset returns.

Keywords: asset returns; tactical asset allocation; TAA; multivariate GARCH models; tracking error constraints; error-constrained portfolios; Black and Litterman approach. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (9)

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Working Paper: Multivariate GARCH models and Black-Litterman approach for tracking error constrained portfolios: an empirical analysis (2006)
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