Dual Focus on Systemic Risk in Portfolio Management

Kód výsledku v 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>

Výsledek na webu

<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>

Jazyk výsledku

angličtina

Název v původním jazyce

Dual Focus on Systemic Risk in Portfolio Management

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

Dual Focus on Systemic Risk in Portfolio Management

Popis výsledku anglicky

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.

Druh

D - Stať ve sborníku

CEP obor

—

OECD FORD obor

50206 - Finance

Projekt

<a href="/cs/project/GA23-07128S" target="_blank" >GA23-07128S: Tržní míry systémového rizika na bázi syntetických CDO</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2023

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název statě ve sborníku

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

—

Počet stran výsledku

11

Strana od-do

396-406

Název nakladatele

Technical University of Liberec

Místo vydání

Liberec

Místo konání akce

Liberec

Datum konání akce

5. 9. 2023

Typ akce podle státní příslušnosti

EUR - Evropská akce

Kód UT WoS článku

001582505100043