A Dynamic Conditional Approach to Portfolio Weights Forecasting

Fabrizio Cipollini (), Giampiero Gallo () and Alessandro Palandri ()
Additional contact information
Fabrizio Cipollini: Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze, https://www.disia.unifi.it
Alessandro Palandri: Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze, https://www.disia.unifi.it

No 2020_06, Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: We build the time series of optimal realized portfolio weights from high-frequency data and we suggest a novel Dynamic Conditional Weights (DCW) model for their dynamics. DCW is benchmarked against popular model-based and model-free specifications in terms of weights forecasts and portfolio allocations. Next to portfolio variance, certainty equivalent and turnover, we introduce the break-even transaction costs as an additional measure that identifies the range of transaction costs for which one allocation is preferred to another. By comparing minimum-variance portfolios built on the components of the Dow Jones 30 Index, the proposed DCW overall attains the best allocations with respect to the measures considered, for any degree of risk-aversion, transaction costs and exposure.

Keywords: Portfolio Allocation; Realized Volatility; Realized Correlations; Dynamic Conditional Modeling; Portfolio Weights Modeling (search for similar items in EconPapers)
JEL-codes: C32 C53 G11 G17 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-05
New Economics Papers: this item is included in nep-for, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Working Paper: A dynamic conditional approach to portfolio weights forecasting (2020)
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