Portfolio Optimization of Global REITs Returns: High-Dimensional Copula-Based Approach

Roengchai Tansuchat ()

No 2704838, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: The objectives of this paper are to investigate the optimum portfolio of REIT index return of Asia ? Pacific, Europe, USA, and emerging markets with multivariate t copula based on GARCH model, and to measure portfolio risk with value at risk (VaR) and component VaR (CVaR). The 1,454 REIT price index return observations were collected from 1 Dec 2009 to 29 June 2015 and calculated based on a continuous compound basis. The empirical results showed that the estimated equations of USA, Europe and emerging REIT index returns were ARMA(2,2)-GARCH(1,1), while ASIA-Pacific was ARMA(3,3)-GARCH(1,1). The coefficients of t distribution of these equations were also statistically significant at 1%, meaning the assumption of t distribution for ARMA-GARCH estimation was reasonable. Then, the multivariate t copula was used to construct an optimized portfolio for high dimensional risk management. The Monte Carlo simulation was applied in order to construct the optimized portfolio by using the mean-CVaR model at the given significance level of 5% and to obtain the efficient frontier of the portfolio under different expected returns. Finally, the optimal weights of the portfolio were obtained with the various expected returns in frontier.

Keywords: REITs; Portfolio Optimization; Multivariate t Copula; CVaR (search for similar items in EconPapers)
JEL-codes: C32 C58 G11 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2015-09
New Economics Papers: this item is included in nep-rmg and nep-sea
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Published in Proceedings of the Proceedings of the 18th International Academic Conference, London, Sep 2015, pages 698-709

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iacpro:2704838

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