Titulo:
Portfolio Optimization and Long-Term Dependence
.
Guardado en:
1794-1113
2346-2140
2011-07-01
info:eu-repo/semantics/openAccess
http://purl.org/coar/access_right/c_abf2
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metarevistapublica_uexternado_revistaodeon_39_article_3329 |
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ojs |
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Portfolio Optimization and Long-Term Dependence Portfolio Optimization and Long-Term Dependence Whilst emphasis has been given to short-term dependence of financial returns, long-term dependence remains overlooked. Despite the fact than financial literature provides evidence of long-term memory existence, serial-independence assumption prevails. This document’s long-term dependence assessment relies on rescaled range analysis (R/S), a popular and robust methodology designed for Geophysics but extensively used in financial literature. Results correspond to most of the previous evidence of significant long-term dependence, particularly for small and illiquid markets, where persistence is its most common kind. Persistence conveys that the range of possible future values of the variable will be wider than the range of purely random and independent variables. Ahead of R/S financial literature, authors estimate an adjusted Hurst exponent in order to properly estimate the covariance matrix at higher investment horizons, avoiding the traditional independence-reliant square-root-of-time rule. Ignoring long-term dependence within the mean-variance portfolio optimization results in concealed risk taking; conversely, by adjusting for long-term dependence the weight of high (low) persistence risk factors decreases (increases) as the investment horizon widens. This alleviates some well-known shortcomings of conventional portfolio optimization for long-term investors (e.g. central banks, pension funds and sovereign wealth managers), such as excessive risk taking in long-term portfolios, extreme weights, home bias, and reluctance to hold foreign currency-denominated assets. León, Carlos Reveiz, Alejandro Portfolio optimization Hurst exponent long-term dependence biased random walk rescaled range analysis 6 Artículo de revista Journal article 2011-07-01T00:00:00Z 2011-07-01T00:00:00Z 2011-07-01 application/pdf Universidad Externado de Colombia ODEON 1794-1113 2346-2140 https://revistas.uexternado.edu.co/index.php/odeon/article/view/3329 https://revistas.uexternado.edu.co/index.php/odeon/article/view/3329 eng https://creativecommons.org/licenses/by-nc-sa/4.0/ https://revistas.uexternado.edu.co/index.php/odeon/article/download/3329/2979 info:eu-repo/semantics/article http://purl.org/coar/resource_type/c_6501 http://purl.org/redcol/resource_type/ARTREF info:eu-repo/semantics/publishedVersion http://purl.org/coar/version/c_970fb48d4fbd8a85 info:eu-repo/semantics/openAccess http://purl.org/coar/access_right/c_abf2 Text Publication |
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UNIVERSIDAD EXTERNADO DE COLOMBIA |
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https://nuevo.metarevistas.org/UNIVERSIDADEXTERNADODECOLOMBIA/logo.png |
| country_str |
Colombia |
| collection |
Revista ODEON |
| title |
Portfolio Optimization and Long-Term Dependence |
| spellingShingle |
Portfolio Optimization and Long-Term Dependence León, Carlos Reveiz, Alejandro Portfolio optimization Hurst exponent long-term dependence biased random walk rescaled range analysis |
| title_short |
Portfolio Optimization and Long-Term Dependence |
| title_full |
Portfolio Optimization and Long-Term Dependence |
| title_fullStr |
Portfolio Optimization and Long-Term Dependence |
| title_full_unstemmed |
Portfolio Optimization and Long-Term Dependence |
| title_sort |
portfolio optimization and long-term dependence |
| title_eng |
Portfolio Optimization and Long-Term Dependence |
| description_eng |
Whilst emphasis has been given to short-term dependence of financial returns, long-term dependence remains overlooked. Despite the fact than financial literature provides evidence of long-term memory existence, serial-independence assumption prevails. This document’s long-term dependence assessment relies on rescaled range analysis (R/S), a popular and robust methodology designed for Geophysics but extensively used in financial literature. Results correspond to most of the previous evidence of significant long-term dependence, particularly for small and illiquid markets, where persistence is its most common kind. Persistence conveys that the range of possible future values of the variable will be wider than the range of purely random and independent variables. Ahead of R/S financial literature, authors estimate an adjusted Hurst exponent in order to properly estimate the covariance matrix at higher investment horizons, avoiding the traditional independence-reliant square-root-of-time rule. Ignoring long-term dependence within the mean-variance portfolio optimization results in concealed risk taking; conversely, by adjusting for long-term dependence the weight of high (low) persistence risk factors decreases (increases) as the investment horizon widens. This alleviates some well-known shortcomings of conventional portfolio optimization for long-term investors (e.g. central banks, pension funds and sovereign wealth managers), such as excessive risk taking in long-term portfolios, extreme weights, home bias, and reluctance to hold foreign currency-denominated assets.
|
| author |
León, Carlos Reveiz, Alejandro |
| author_facet |
León, Carlos Reveiz, Alejandro |
| topic |
Portfolio optimization Hurst exponent long-term dependence biased random walk rescaled range analysis |
| topic_facet |
Portfolio optimization Hurst exponent long-term dependence biased random walk rescaled range analysis |
| citationissue |
6 |
| publisher |
Universidad Externado de Colombia |
| ispartofjournal |
ODEON |
| source |
https://revistas.uexternado.edu.co/index.php/odeon/article/view/3329 |
| language |
eng |
| format |
Article |
| rights |
https://creativecommons.org/licenses/by-nc-sa/4.0/ info:eu-repo/semantics/openAccess http://purl.org/coar/access_right/c_abf2 |
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info:eu-repo/semantics/article |
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http://purl.org/coar/resource_type/c_6501 |
| type_version |
info:eu-repo/semantics/publishedVersion |
| type_coarversion |
http://purl.org/coar/version/c_970fb48d4fbd8a85 |
| type_content |
Text |
| publishDate |
2011-07-01 |
| date_accessioned |
2011-07-01T00:00:00Z |
| date_available |
2011-07-01T00:00:00Z |
| url |
https://revistas.uexternado.edu.co/index.php/odeon/article/view/3329 |
| url_doi |
https://revistas.uexternado.edu.co/index.php/odeon/article/view/3329 |
| issn |
1794-1113 |
| eissn |
2346-2140 |
| url2_str_mv |
https://revistas.uexternado.edu.co/index.php/odeon/article/download/3329/2979 |
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1811199255895867392 |