Diversification benefits of risk portfolio models: a case of Taiwan’s stock market

Diversification benefits of risk portfolio models: a case of Taiwan’s stock market How to construct effective investment strategies is a core issue for modern finance. In this paper, we investigate the benefits of various models by rebalancing portfolios using the daily stock return data in Taiwan. We further consider investment constraints in portfolios to ensure the feasibility of their applications. Using five performance criteria, we find the risk models, particularly the CVaR, yield higher ex ante and ex post performance than a naïve buy-and-hold portfolio. The two-stage regressions show that high return benefits are associated with a bear market while high reduction in risk is positively related to high volatility. Though VaR is regarded as a standard model applied in the real world, our findings suggest that CVaR can serve as a good alternative. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Diversification benefits of risk portfolio models: a case of Taiwan’s stock market

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Publisher
Springer Journals
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-016-0558-0
Publisher site
See Article on Publisher Site

Abstract

How to construct effective investment strategies is a core issue for modern finance. In this paper, we investigate the benefits of various models by rebalancing portfolios using the daily stock return data in Taiwan. We further consider investment constraints in portfolios to ensure the feasibility of their applications. Using five performance criteria, we find the risk models, particularly the CVaR, yield higher ex ante and ex post performance than a naïve buy-and-hold portfolio. The two-stage regressions show that high return benefits are associated with a bear market while high reduction in risk is positively related to high volatility. Though VaR is regarded as a standard model applied in the real world, our findings suggest that CVaR can serve as a good alternative.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 29, 2016

References

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