|
|
|
| Modeling High-dimensional Correlation and its Application to Asset Allocation |
| PAN Zhiyuan, MAO Jinlong, ZHOU Binrui
|
| Institute of Chinese Financial Studies/Collaborative Innovation Center of Financial Security, Southwestern University of Finance and Economics |
|
|
|
|
Abstract Taking account of some stylized facts in correlation processes and feasible implementation, a new regime switching dynamic equicorrelation (RS-DEC) model is proposed. Estimate procedures and large sample properties are also provided. RS-DEC model not only deals with high-dimensional correlation, but also takes account for structure break and asymmetry in correlation. In empirical work, we examine the asset allocation on 97 stocks in the Shanghai Stock Exchange. Our model can provide a better fit in sample, and give the information for correlations structure break; Comparing with Na$\ddot{\shortmid}$ve strategy, under Sharpe ratio and minimum standard error criteria, the results show that our model can improve the out-of-sample performance, and significant tests support these conclusions.
|
|
Received: 18 October 2016
Published: 01 January 1900
|
|
|
|
|
|
|
|
