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Modeling and Forecasting Realized Portfolio Diversification Benefits

Faculty of Management and Economics, Ruhr-Universität Bochum, 44780 Bochum, Germany
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J. Risk Financial Manag. 2019, 12(3), 116; https://doi.org/10.3390/jrfm12030116
Received: 17 May 2019 / Revised: 5 July 2019 / Accepted: 9 July 2019 / Published: 11 July 2019
(This article belongs to the Special Issue Panel Data and Factor Models in Empirical Finance)
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Abstract

For a financial portfolio, we suggest a realized measure of diversification benefits, which is based on intraday high-frequency returns. Our measure quantifies volatility reduction, which could be achieved by including an additional asset in the portfolio. In order to make our approach feasible for investors, we also provide time series modeling of both the realized diversification measure and realized portfolio weight. The performance of our approach is evaluated in-sample and out-of-sample. We find out that our approach is helpful for the purpose of portfolio variance minimization. View Full-Text
Keywords: diversification benefits; HAR models; minimum variance portfolio; realized measures diversification benefits; HAR models; minimum variance portfolio; realized measures
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Golosnoy, V.; Hildebrandt, B.; Köhler, S. Modeling and Forecasting Realized Portfolio Diversification Benefits. J. Risk Financial Manag. 2019, 12, 116.

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