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Tail risk optimized portfolio across states in Asia-Pacific markets with higher-order dependence

Saurav Kumar, Sujoy Bhattacharya and Satrajit Mandal

Macroeconomics and Finance in Emerging Market Economies, 2022, vol. 15, issue 2, 177-195

Abstract: This paper investigates energy commodities’ ability to diversify an equity portfolio across Asia-Pacific Markets. The joint behaviour of the energy commodities and stock index as noted through its shape, changed both temporally and across regime changes. Restricting short selling of stock index by assigning a greater than zero weight on the equity index improved return from the portfolio across regimes. The tail risk optimized portfolio gave the best risk-return trade-off. Though this was the case, one could use VaR and variance as risk measures with higher-order dependence on copulas in the optimization, if there were no constraints on portfolio returns.

Date: 2022
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DOI: 10.1080/17520843.2021.1922167

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