Skip Navigation



RFS Advance Access published online on October 28, 2005
Review of Financial Studies, doi:10.1093/rfs/hhj002
This Article
Right arrow Advance Access manuscript (PDF)
Right arrow All Versions of this Article:
19/1/237    most recent
hhj002v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Han, Y.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2005. Published by Oxford University Press on behalf of the by The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Article

Asset Allocation with a High Dimensional Latent Factor Stochastic Volatility Model*

Yufeng Han 1*
1 Tulane University

* To whom correspondence should be addressed.
Yufeng Han, E-mail: yhan{at}tulane.edu


  Abstract

We investigate the implications of time-varying expected return and volatility on asset allocation in a high-dimensional setting. We propose a DFMSV model that allows the first two moments of returns to vary over time for a large number of assets. We then evaluate the economic significance of the DFMSV model by examining the performance of various dynamic portfolio strategies chosen by mean-variance investors in a universe of 36 stocks. We find that the DFMSV dynamic strategies significantly outperform various benchmark strategies out of sample. This outperformance is robust to different performance measures, investor’s objective functions, time periods, and assets.

* I am grateful to Kerry Back, Suman Banerjee, David Bates, Nai-fu Chen, Shane Corwin, Cheol Eun, Heber Farnsworth, Frank Fehle, Jeff Fleming, Thomas George, Shingo Goto, John Hund, Narayanan Jayaraman, Christopher Jones, Praveen Kumar, David Lesmond, Marc Lipson, Greg Niehaus, Thomas Noe, John Scruggs, Paul Schultz, Ken Singleton (the editor), Jason Smith, Christopher Stivers, Sheri Tice, Sergey Tsyplakov, Anand Vijh, Yihong Xia, Guofu Zhou, seminar participants at the 2003 AFA meetings, Georgia Institute of Technology, Tulane University, University of California at Irvine, University of Georgia, University of Houston, University of Iowa, University of Notre Dame, University of South Carolina and Washington University in St. Louis for helpful comments, and especially to Siddhartha Chib for his advice and encouragement, and an anonymous referee for insightful suggestions that have substantially improved the article. This paper was previously circulated under the title "The Economic Value of Volatility Modeling: Asset Allocation with a High Dimensional Dynamic Latent Factor Multivariate Stochastic Volatility Model."
Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
P. D. Corte, L. Sarno, and I. Tsiakas
An Economic Evaluation of Empirical Exchange Rate Models
Rev. Financ. Stud., June 13, 2008; (2008) hhn058v1.
[Abstract] [Full Text] [PDF]


Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.