Downside Risk and Portfolio Optimization of Energy Stocks: A Study on the Extreme Value Theory and the Vine Copula Approach

Madhusudan Karmakar and Samit Paul

The Energy Journal, 2023, vol. 44, issue 2, 139-180

Abstract: ABSTRACT Energy stocks are potentially a hedge against inflation and have a number of advantages over other forms of energy investing. This motivates us to study on portfolio management of energy stocks. We compare the performance of proposed GARCH-EVT-vine copula models under three different dimensions with other competing models using energy stocks from the U.S. market. In our proposed model, we use static C- and D-vine copulas. We compare the accuracy and efficiency of different models in forecasting portfolio VaR and CVaR. We also examine whether the proposed models yield greater economic and statistical performances than the competing models in a tactical asset allocation framework. Our findings indicate that the proposed models perform best overall. In fact, the relatively better performance of the proposed model is even more prominent when the portfolio size increases. Further, the comparative analysis between GARCHEVT-static vine and GARCH-EVT-dynamic vine copula models produces mixed results.

Keywords: VaR; CVaR; EVT; Copula; C-Vine; D-Vine; Dynamic (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.44.2.mkar (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:44:y:2023:i:2:p:139-180

DOI: 10.5547/01956574.44.2.mkar

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().