Strategic asset allocation by mixing shrinkage, vine copula and market equilibrium

Fan Zhang and Zhichao Zhang ()

Journal of Forecasting, 2018, vol. 37, issue 3, 340-351

Abstract: We propose a new portfolio optimization method combining the merits of the shrinkage estimation, vine copula structure, and Black–Litterman model. It is useful for many investors to satisfy simultaneously the three investment objectives: estimation sensitivity, asymmetric risks appreciation, and portfolio stability. A typical investor with such objectives is a sovereign wealth fund (SWF). We use China's SWF as an example to empirically test the method based on a 15†asset strategic asset allocation problem. Robustness tests using subsamples not only show the method's overall effectiveness but also manifest that the function of each component is as expected.

Date: 2018
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https://doi.org/10.1002/for.2506

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:37:y:2018:i:3:p:340-351

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