Portfolio Selection between a Mature Market and Selected Emerging Markets Indices in the Presence of Structural Breaks

27 Pages Posted: 5 May 2020

See all articles by Jovan Njegić

Jovan Njegić

Novi Sad Business School

Dejan Živkov

Novi Sad Business School

Mirela Momcilovic

affiliation not provided to SSRN

Date Written: July 2019

Abstract

The paper examines the influence of the structural breaks on the optimal weights, hedge ratios and hedge effectiveness index (HEI) of risk‐minimizing portfolios composed of S&P500 and selected emerging markets’ indices from East Europe, Asia and South America. We employ a bivariate DCC‐EGARCH models without and with structural breaks and we find better estimation features when structural breaks are included in the model. However, we do not find evidence that insertion of structural breaks increases portfolio hedging performances. The differences that exist between optimal weights, hedge ratios and HEI values are so small that tangible economic benefit for international investors do not exist.

Keywords: emerging markets, portfolio optimization, structural breaks

JEL Classification: C51, G11, G15

Suggested Citation

Njegić, Jovan and Živkov, Dejan and Momcilovic, Mirela, Portfolio Selection between a Mature Market and Selected Emerging Markets Indices in the Presence of Structural Breaks (July 2019). Bulletin of Economic Research, Vol. 71, Issue 3, pp. 439-465, 2019, Available at SSRN: https://ssrn.com/abstract=3590662 or http://dx.doi.org/10.1111/boer.12187

Jovan Njegić (Contact Author)

Novi Sad Business School ( email )

Vladimira Perica-Valtera 4
Bulevar kralja Petra I 38
Novi Sad, 21000
Serbia

Dejan Živkov

Novi Sad Business School

Vladimira Perica-Valtera 4
Bulevar kralja Petra I 38
Novi Sad, 21000
Serbia

Mirela Momcilovic

affiliation not provided to SSRN

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