Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Tail Event Driven ASset allocation
T2 - evidence from equity and mutual funds’ markets
AU - Haerdle, Wolfgang
AU - Lee Kuo Chuen, David
AU - Nasekin, Sergey
AU - Petukhina, Alla
PY - 2018/1/1
Y1 - 2018/1/1
N2 - 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 different tail measures. TEDAS uses adaptive Lasso-based quantile regression in order to determine an active set of negative 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 naïve equal weighting. TEDAS strategies significantly outperform other widely used allocation approaches on two asset markets: German equity and Global mutual funds.
AB - 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 different tail measures. TEDAS uses adaptive Lasso-based quantile regression in order to determine an active set of negative 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 naïve equal weighting. TEDAS strategies significantly outperform other widely used allocation approaches on two asset markets: German equity and Global mutual funds.
KW - Adaptive lasso
KW - Portfolio optimization
KW - Quantile regression
KW - Value-at-Risk
KW - Tail events
U2 - 10.1057/s41260-017-0060-9
DO - 10.1057/s41260-017-0060-9
M3 - Journal article
VL - 19
SP - 49
EP - 63
JO - Journal of Asset Management
JF - Journal of Asset Management
SN - 1470-8272
IS - 1
ER -