A Comparison of Cointegration and Copula Asset Allocation Approaches

Y S Stander, D J Marais and Ilse Botha

Studies in Economics and Econometrics, 2013, vol. 37, issue 1, 1-28

Abstract: The empirical performance of cointegration and copula asset allocation techniques are compared against that of the market. Multivariate copula structures are used to derive index-tracking portfolios which are then compared with that of portfolios constructed using cointegration techniques. The results suggest that modelling the long-term relationships between stocks by means of the cointegration approach do not consistently lead to portfolios that outperform the benchmark. Using a short-term asset allocation approach, such as the copula-simulation approach, lead to portfolios that perform at least as well as the cointegration portfolios.

Date: 2013
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DOI: 10.1080/10800379.2013.12097245

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