On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion
AbstractIt is well known that the volatility spillover increases when a large economic shock occurs, and then the volatility spillover pattern in the market changes. Accordingly, many papers note that clarifying the time-varying pattern of volatility transmission in domestic and international market...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2023-06-01
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| Series: | Cogent Economics & Finance |
| Subjects: | |
| Online Access: | https://www.tandfonline.com/doi/10.1080/23322039.2023.2243200 |
| _version_ | 1797755564603736064 |
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| author | Hideto Shigemoto Takayuki Morimoto |
| author_facet | Hideto Shigemoto Takayuki Morimoto |
| author_sort | Hideto Shigemoto |
| collection | DOAJ |
| description | AbstractIt is well known that the volatility spillover increases when a large economic shock occurs, and then the volatility spillover pattern in the market changes. Accordingly, many papers note that clarifying the time-varying pattern of volatility transmission in domestic and international markets is useful for investors and policymakers. This paper focuses on information contagion across various industrial sectors, investigates portfolio strategies based on the volatility spillovers, and aims to clarify whether an investment strategy based on volatility spillovers benefits investors. Regarding portfolio reallocation, as soon as we observe an increase or a decrease in the effect/timing of a volatility spillover, we obtain a smaller number of reallocations and a more informative portfolio. Our results compare our proposed method with periodic portfolios, for example, daily or annually, showing that our proposed method has larger returns and a greater Sharpe ratio than the others. |
| first_indexed | 2024-03-12T17:48:08Z |
| format | Article |
| id | doaj.art-fbb57b505d854f9184c5b5bbbaafdca6 |
| institution | Directory Open Access Journal |
| issn | 2332-2039 |
| language | English |
| last_indexed | 2024-03-12T17:48:08Z |
| publishDate | 2023-06-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj.art-fbb57b505d854f9184c5b5bbbaafdca62023-08-03T12:00:25ZengTaylor & Francis GroupCogent Economics & Finance2332-20392023-06-0111210.1080/23322039.2023.2243200On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagionHideto Shigemoto0Takayuki Morimoto1Group Risk Management Department, Nomura Holdings, Tokyo, JapanDepartment of Mathematical Sciences, Kwansei Gakuin University, Sanda, Hyogo, JapanAbstractIt is well known that the volatility spillover increases when a large economic shock occurs, and then the volatility spillover pattern in the market changes. Accordingly, many papers note that clarifying the time-varying pattern of volatility transmission in domestic and international markets is useful for investors and policymakers. This paper focuses on information contagion across various industrial sectors, investigates portfolio strategies based on the volatility spillovers, and aims to clarify whether an investment strategy based on volatility spillovers benefits investors. Regarding portfolio reallocation, as soon as we observe an increase or a decrease in the effect/timing of a volatility spillover, we obtain a smaller number of reallocations and a more informative portfolio. Our results compare our proposed method with periodic portfolios, for example, daily or annually, showing that our proposed method has larger returns and a greater Sharpe ratio than the others.https://www.tandfonline.com/doi/10.1080/23322039.2023.2243200portfolio managementrealized volatilityVAR modelvolatility spillovercross-sector information contagion |
| spellingShingle | Hideto Shigemoto Takayuki Morimoto On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion Cogent Economics & Finance portfolio management realized volatility VAR model volatility spillover cross-sector information contagion |
| title | On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion |
| title_full | On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion |
| title_fullStr | On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion |
| title_full_unstemmed | On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion |
| title_short | On the usefulness of dynamically spilled risk: An optimal portfolio allocation based on cross-sector information contagion |
| title_sort | on the usefulness of dynamically spilled risk an optimal portfolio allocation based on cross sector information contagion |
| topic | portfolio management realized volatility VAR model volatility spillover cross-sector information contagion |
| url | https://www.tandfonline.com/doi/10.1080/23322039.2023.2243200 |
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