Portfolio allocation in transition economies

Michael Rockinger () and Eric Jondeau

No 740, HEC Research Papers Series from HEC Paris

Abstract: Designing an investment strategy in transition economies is a difficult task because stock-markets opened through time, time series are short, and there is little guidance how to obtain expected returns and covariance matrices necessary for mean-variance portfolio allocation. Also, structural breaks are likely to occur. We develop an ad-hoc investment strategy with a flavor of Bayesian learning. An observation is that often an extreme event will herald a new state of the economy. We use this observation to re-initialize learning when unlikely returns materialize. By using a Cornell benchmark, we are able to show the usefulness of our strategy for certain types of re-initializations.

Keywords: mean-variance allocation; portfolio choice; transition economies (search for similar items in EconPapers)
JEL-codes: C11 C32 F30 G11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2001-10-01
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-rmg and nep-tra
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Working Paper: Portfolio allocation in transition economies (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:0740

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