Diversification benefits of risk portfolio models: a case of Taiwan’s stock market

Jing-Rung Yu (), Wan-Jiun Paul Chiou () and Jian-Hong Yang ()
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Jing-Rung Yu: National Chi-Nan University
Wan-Jiun Paul Chiou: Northeastern University
Jian-Hong Yang: National Chi-Nan University

Review of Quantitative Finance and Accounting, 2017, vol. 48, issue 2, No 8, 467-502

Abstract: Abstract How to construct effective investment strategies is a core issue for modern finance. In this paper, we investigate the benefits of various models by rebalancing portfolios using the daily stock return data in Taiwan. We further consider investment constraints in portfolios to ensure the feasibility of their applications. Using five performance criteria, we find the risk models, particularly the CVaR, yield higher ex ante and ex post performance than a naïve buy-and-hold portfolio. The two-stage regressions show that high return benefits are associated with a bear market while high reduction in risk is positively related to high volatility. Though VaR is regarded as a standard model applied in the real world, our findings suggest that CVaR can serve as a good alternative.

Keywords: Diversification benefits; Risk modeling; VaR; CVaR (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-016-0558-0

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