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Portfolio Selection with Irregular Time Grids: an example using an ICA-COGARCH(1, 1) approach

Francesco Bianchi (), Lorenzo Mercuri () and Edit Rroji ()
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Francesco Bianchi: Independent
Lorenzo Mercuri: University of Milan
Edit Rroji: University of Milano-Bicocca

Financial Markets and Portfolio Management, 2022, vol. 36, issue 1, No 3, 57-85

Abstract: Abstract In this paper we consider a portfolio selection problem defined for irregularly spaced observations. We use the Independent Component Analysis for the identification of the dependence structure and continuous-time GARCH models for the marginals. We discuss both estimation and simulation of market prices in a context where the time grid of price quotations differs across assets. We present an empirical analysis of the proposed approach using two high-frequency datasets that provides better out-of-sample results than competing portfolio strategies except for the case of severe market conditions with frequent rebalancements.

Keywords: Irregular grids; Independent Component Analysis; Continuous GARCH; Risk measures (search for similar items in EconPapers)
JEL-codes: C11 C51 G17 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11408-021-00387-3

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