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An application of the Black–Litterman model with EGARCH-M-derived views for international portfolio management

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Abstract

This paper provides an application of the Black–Litterman methodology to portfolio management in a global setting. The novel feature of this paper relative to the extant literature on Black–Litterman methodology is that we use GARCH-derived views as an input into the Black–Litterman model. The returns on our portfolio surpass those of portfolios that rely on market equilibrium weights or Markowitz-optimal allocations. We thereby illustrate how the Black–Litterman model can be put to work in designing global investment strategies.

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Authors and Affiliations

  1. Department of Accounting and Finance, College of Business and Economics, Radford University, Radford, VA, 24142-6951, USA

    Steven L. Beach

  2. Department of Economics, College of Business and Economics, Radford University, Radford, VA, 24142-6952, USA

    Alexei G. Orlov

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  1. Steven L. Beach
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  2. Alexei G. Orlov
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Correspondence to Steven L. Beach.

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Beach, S.L., Orlov, A.G. An application of the Black–Litterman model with EGARCH-M-derived views for international portfolio management. Fin Mkts Portfolio Mgmt 21, 147–166 (2007). https://doi.org/10.1007/s11408-007-0046-6

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