Dual Focus on Systemic Risk in Portfolio Management

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F23%3A10252959" target="_blank" >RIV/61989100:27510/23:10252959 - isvavai.cz</a>
Result on the web
<a href="https://drive.google.com/file/d/1wlzvkm-tOveKAn-k0uagT6RFIo6IjhIK/view" target="_blank" >https://drive.google.com/file/d/1wlzvkm-tOveKAn-k0uagT6RFIo6IjhIK/view</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.15240/tul/009/lef-2023-43" target="_blank" >10.15240/tul/009/lef-2023-43</a>

Result language
angličtina
Original language name
Dual Focus on Systemic Risk in Portfolio Management
Original language description
In this paper, we examine a complex portfolio selection strategy with a dual emphasis on systemic risk. This strategy or only its elements are advisable for both portfolio managers as well as macroprudential regulators. In particular, first, we present the concept of an early warning system (alarm) employing selected entropy measures, which allow us to detect systemic risk in financial markets. Secondly, we apply the two-phase optimization framework to determine the optimal composition of the portfolio. Essentially, the first phase of this strategy includes the reward-risk ratio maximization part and the following phase aims at systematic risk minimization. Furthermore, we approximate the returns using a dynamic set of components obtained from the principal component analysis and the classical ordinary least squares regression. In the empirical analysis using US market data, the wealth paths and statistics of different portfolio strategies are compared with each other. Ex-post results confirm higher profitability of the early warning system with double optimization, even if the transaction costs are taken into account. However, the main benefit lies in the significantly better risk properties of the proposed strategy.
Czech name
—
Czech description
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Project
<a href="/en/project/GA23-07128S" target="_blank" >GA23-07128S: Market based measures of systemic risk using synthetic CDOs</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2023
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection
Liberec Economic Forum 2023 : proceedings of the 16th international conference : 5th – 6 th September 2023, Liberec, Czech Republic, EU
ISBN
978-80-7494-672-1
ISSN
—
e-ISSN
—
Number of pages
11
Pages from-to
396-406
Publisher name
Technical University of Liberec
Place of publication
Liberec
Event location
Liberec
Event date
Sep 5, 2023
Type of event by nationality
EUR - Evropská akce
UT code for WoS article
001582505100043

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