An Economic Evaluation of Range-Based Covariance between Stock and Bond Returns with Dynamic Copulas
碩士 === 元智大學 === 財務金融學系 === 98 === The covariance between stock and bond returns plays an important role in asset allocation strategies and portfolio diversification processes. This paper proposes a multivariate range-based volatility model which combines the range-based volatility model with dynamic...
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Others |
| Language: | en_US |
| Published: |
2010
|
| Online Access: | http://ndltd.ncl.edu.tw/handle/59316804673535705824 |
| Summary: | 碩士 === 元智大學 === 財務金融學系 === 98 === The covariance between stock and bond returns plays an important role in asset allocation strategies and portfolio diversification processes. This paper proposes a multivariate range-based volatility model which combines the range-based volatility model with dynamic copulas to describe the volatility and dependence structure of stock and bond returns, and then assesses the economic value of covariance forecasts based on our proposed model in a mean-variance framework. In terms of out-of-sample forecasting performance, an investor is willing to pay a substantial fee of between 41 and 2022 basis points per year for switching from a dynamic trading strategy based on the return-based volatility model to that based on the range-based volatility model. A more risk-averse investor would be willing to pay a higher fee to switch his strategy. In addition, extra economic gains of between 25 and 1392 annualized basis points are yielded by taking the leverage effect into consideration.
|
|---|