Improving Portfolio Optimization by DCC And DECO GARCH: Evidence from Istanbul Stock Exchange

Tolgahan Yilmaz

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, the performance of global minimum variance (GMV) portfolios constructed by DCC and DECO-GARCH are compared to that of GMV portfolios constructed by sample covariance and constant correlation methods in terms of reduced volatility. Also, the performance of GMV portfolios are tested against that of equally weighted and cap weighted portfolios. Portfolios are constructed from the stocks listed in Istanbul Stock Exchange 30 index (hereafter, ISE-30). The results show that GMV portfolios constructed by DCC-GARCH outperformed the other portfolios. In addition, the performance of GMV portfolios estimated by DCC and DECO-GARCH methods are improved by extending calibration period from three years to four years and lowering rolling window term from one week to one day, while the performances of other GMV portfolios decrease. It shows the effect of time varying variance and dynamic correlations on portfolio optimization at Turkish stock market.

Keywords: DCC-GARCH; DECO-GARCH; GMV portfolio (search for similar items in EconPapers)
JEL-codes: C32 C51 C61 G11 (search for similar items in EconPapers)
Date: 2010-12-01
New Economics Papers: this item is included in nep-ara and nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:27314

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