Portfolio allocation using multivariate variance gamma models

Asmerilda Hitaj () and Lorenzo Mercuri ()

Financial Markets and Portfolio Management, 2013, vol. 27, issue 1, 65-99

Abstract: In this paper, we investigate empirically the effect of using higher moments in portfolio allocation when parametric and nonparametric models are used. The nonparametric model considered in this paper is the sample approach; the parametric model is constructed assuming multivariate variance gamma (MVG) joint distribution for asset returns.We consider the MVG models proposed by Madan and Seneta ( 1990 ), Semeraro ( 2008 ) and Wang ( 2009 ). We perform an out-of-sample analysis comparing the optimal portfolios obtained using the MVG models and the sample approach. Our portfolio is composed of 18 assets selected from the S&P500 Index and the dataset consists of daily returns observed from 01/04/2000 to 01/09/2011. Copyright Swiss Society for Financial Market Research 2013

Keywords: Portfolio selection; Multivariate variance gamma model; Higher-order moments; C51; G11 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11408-012-0202-5

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