: A Risk Management Approach to Optimal Asset Allocation

Thomas J. Flavin () and Michael Wickens
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Thomas J. Flavin: Economics, National University of Ireland, Maynooth

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: This paper examines how to improve tactical asset allocation by better risk management instead of concentrating on maximising returns. This is achieved by using forecasts of the time- varying conditional covariance matrix of returns obtained from a new specification of the multivariate GARCH process that is particularly well suited to modelling asset returns due to its generality, parameter parsimony and relative ease of estimation. We show that for a portfolio of four UK assets over the period 1976-1997 it would be possible to reduce portfolio risk by on average 5% compared with using the constant sample covariance matrix.

Keywords: Risk management; asset allocation; GARCH (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Pages: 30 pages
Date: 1998-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: A Risk Management Approach to Optimal Asset Allocation (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n851298

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