Dynamic Portfolio Selection on Croatian Financial Markets: MGARCH Approach

• Authors: Tihana Škrinjarić , Boško Šego
• Languages of publication: EN

Abstracts

EN

Background: Investors on financial markets are interested in finding trading strategies which could enable them to beat the market. They always look for best possibilities to achieve above-average returns and manage risks successfully. MGARCH methodology (Multivariate Generalized Autoregressive Conditional Heteroskedasticity) makes it possible to model changing risks and return dynamics on financial markets on a daily basis. The results could be used in order to enhance portfolio formation and restructuring over time. Objectives: This study utilizes MGARCH methodology on Croatian financial markets in order to enhance portfolio selection on a daily basis. Methods/Approach: MGARCH methodology is applied to the stock market index CROBEX, the bond market index CROBIS and the kuna/euro exchange rate in order to model the co-movements of returns and risks on a daily basis. The estimation results are then used to form successful portfolios. Results: Results indicate that using MGARCH methodology (the CCC and the DCC model) as guidance when forming and rebalancing a portfolio contributes to less portfolio volatility and greater cumulated returns compared to strategies which do not take this methodology into account. Conclusions: It is advisable to use MGARCH methodology when forming and rebalancing portfolios in terms of portfolio selection.

Keywords

EN

Zagreb Stock Exchange; DCC and CCC GARCH; risk hedging; volatility; G12; C58

• Publisher: Sciendo
• Journal: Business Systems Research Journal
• Year: 2016
• Volume: 7
• Issue: 2
• Pages: 78-90

Dates

published

2016-09-01

received

2016-01-20

accepted

2016-07-21

online

2016-10-17

Contributors

author

Tihana Škrinjarić

• Faculty of Economics and Business, University of Zagreb,

author

Boško Šego

• Faculty of Economics and Business, University of Zagreb,

Identifiers

DOI

10.1515/bsrj-2016-0014