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Portfolio allocation in transition economies

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Abstract

Designing an investment strategy in transition economies is a difficult task because stock-markets opened through time, time series are short, and there is little guidance how to obtain expected returns and covariance matrices necessary for mean-variance portfolio allocation. Also, structural breaks are likely to occur. We develop an ad-hoc investment strategy with a flavor of Bayesian learning. An observation is that often an extreme event will herald a new state of the economy. We use this observation to re-initialize learning when unlikely returns materialize. By using a Cornell benchmark, we are able to show the usefulness of our strategy for certain types of re-initializations.
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Dates and versions

hal-00601482 , version 1 (17-06-2011)

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  • HAL Id : hal-00601482 , version 1

Cite

Michael Rockinger, Eric Jondeau. Portfolio allocation in transition economies. 2001. ⟨hal-00601482⟩

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