Global portfolio management under state dependent multiple risk premia

Timotheos Angelidis and Nikolaos Tessaromatis ()
Additional contact information
Nikolaos Tessaromatis: EDHEC Business School and EDHEC Risk Institute

No 400966, Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences

Abstract: In this paper, we assess the benefits from international factor diversification under a regime based portfolio construction framework that takes into account the dynamic changes in stock markets. We show that there are significant costs to investors who fail to (a) pursue an international diversification strategy using sources of return other than the market premium and (b) take into account the existence of regimes in portfolio construction and asset allocation. Short sale and tracking error constraints reduce but do not eliminate the gains from a dynamic global factor portfolio. Implementation through commercially available, investable factor indices to provide efficient and low cost building blocks to construct a dynamic diversified factor portfolio in practice preserves most of the benefits from state dependent portfolio construction.

Keywords: Diversification benefits; Factor returns; Regime Switching Models. (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Proceedings of the Proceedings of the 2nd Economics & Finance Conference, Vienna, Jul 2014, pages 49-82

Downloads: (external link)
https://iises.net/proceedings/2nd-economics-financ ... ?cid=4&iid=4&rid=966 First version, 2014

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sek:iefpro:0400966

Access Statistics for this paper

More papers in Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences
Bibliographic data for series maintained by Klara Cermakova ().