Abstract
We propose a portfolio-selection model that maximizes expected returns subject to a time-varying value-at-risk constraint. The model allows for time-varying skewness and kurtosis of portfolio distributions estimating the model parameters by weighted maximum likelihood in an increasing-window setup. We determine the best daily investment recommendations in terms of percentage to borrow or lend and the optimal weights of the assets in a risky portfolio. An empirical application illustrates in an out-of-sample context which models are preferred from a statistical and economic point of view.
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© 2011 Erick W. Rengifo and Jeroen V.K. Rombouts
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Rengifo, E.W., Rombouts, J.V.K. (2011). Portfolio Selection with Time-Varying Value-at-Risk. In: Gregoriou, G.N., Pascalau, R. (eds) Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures. Palgrave Macmillan, London. https://doi.org/10.1057/9780230298101_9
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DOI: https://doi.org/10.1057/9780230298101_9
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-32890-1
Online ISBN: 978-0-230-29810-1
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