Abstract

http://ssrn.com/abstract=2226033
 
 

References (1)



 


 



Is Your Covariance Matrix Still Relevant? An Asset Allocation-Based Analysis of Dynamic Volatility Models


James A. Colon


Nuveen Asset Management

February 27, 2013


Abstract:     
Ever since Harry Markowitz published his seminal paper on portfolio selection, investors have incorporated estimates of future volatilities and correlations into their asset allocation process. While portfolio construction methods continue to evolve, many investors continue to forecast volatility using traditional approaches that are ill-suited to the time-changing nature of volatility. In this paper, I analyze the performance of seven different multivariate-volatility models using a new, risk-parity based approach to determine each model’s accuracy. I find that traditional, sample covariance methods perform poorly when trying to forecast short-term volatility, and that a more dynamic model often provides superior out-of-sample forecasts.

Number of Pages in PDF File: 23

Keywords: Volatility, Asset Allocation, Risk Parity, Portfolio Construction, Mean-Variance, Efficient Frontier, GARCH, GTAA

JEL Classification: C00, C10, C50, C58, G00, G11, G17

working papers series


Download This Paper

Date posted: March 1, 2013  

Suggested Citation

Colon, James A., Is Your Covariance Matrix Still Relevant? An Asset Allocation-Based Analysis of Dynamic Volatility Models (February 27, 2013). Available at SSRN: http://ssrn.com/abstract=2226033 or http://dx.doi.org/10.2139/ssrn.2226033

Contact Information

James A. Colon (Contact Author)
Nuveen Asset Management ( email )
333 W. Wacker Drive
Chicago, IL 60606
United States
Feedback to SSRN


Paper statistics
Abstract Views: 750
Downloads: 256
Download Rank: 65,247
References:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.453 seconds