2021/06/03 by Anders D. Sleire, Bård Støve, Sleire, Anders D. +9
Economics, Econometrics and Finance · Mathematics · #Applications (stat.AP) #Complex Systems and Time Series Analysis #FOS: Computer and information sciences #FOS: Economics and business #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Portfolio Management (q-fin.PM) #q-fin.PM #stat.AP
paper · pdf · doi:10.48550/arxiv.2106.12425
arxiv created 2021/06/03 · openalex publication_date 2021/06/03 · arxiv updated 2021/06/24 · openalex created_date 2022/07/25 · openalex updated_date 2026/07/28
It is well known that there are asymmetric dependence structures between financial returns. In this paper we use a new nonparametric measure of local dependence, the local Gaussian correlation, to improve portfolio allocation. We extend the classical mean-variance framework, and show that the portfolio optimization is straightforward using our new approach, only relying on a tuning parameter (the bandwidth). The new method is shown to outperform the equally weighted (1/N) portfolio and the classical Markowitz portfolio for monthly asset returns data.