Publication Type

Conference Paper

Publication Date

8-2015

Abstract

The correlation structure across assets and opposite tail movements are essential to the asset allocation problem, since they determine the level of risk in a position. Correlation alone is not informative on the distributional details of the assets. Recently introduced TEDAS -Tail Event Driven ASset allocation approach determines the dependence between assets at tail measures. TEDAS uses adaptive Lasso based quantile regression in order to determine an active set of negative nonzero coefficients. Based on these active risk factors, an adjustment for intertemporal correlation is made. In this research authors aim to develop TEDAS, by introducing three TEDAS modifications differing in allocation weights‘ determination: a Cornish-Fisher Value-at-Risk minimization, Markowitz diversification rule or naive equal weighting. TEDAS strategies significantly outperform other widely used allocation approaches on two asset markets: German equity and Global mutual funds.

Keywords

adaptive lasso, portfolio optimisation, quantile regression, Value-at-Risk, tail events

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Quantitative Finance

Publication

Singapore Economic Review Conference 2015, August 5-7

First Page

1

Last Page

25

City or Country

Singapore

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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