Industry portfolio allocation with asymmetric correlations

Kim, Myeong Hyeon; Park, Seyoung; Yoon, Jong Mun

Abstract

We develop a new framework of optimal consumption and portfolio choice at industry portfolio level under dynamic and asymmetric correlations between industry and market portfolios. We derive in closed-form the optimal consumption and investment strategies under regime-dependent correlations environment. Overall, we find that ignoring time-varying and asymmetric correlations between portfolios can be costly to investors when applied to a construction of the optimal portfolio. Finally, we empirically test the performance of the model-based investment strategy.

Citation

Kim, M. H., Park, S., & Yoon, J. M. (2021). Industry portfolio allocation with asymmetric correlations. European Journal of Finance, 27(1-2), 178-198. https://doi.org/10.1080/1351847x.2020.1740287

• Journal Article Type: Article
• Acceptance Date: Feb 20, 2020
• Online Publication Date: Mar 24, 2020
• Publication Date: 2021
• Deposit Date: Mar 3, 2020
• Publicly Available Date: Sep 25, 2021
• Journal: The European Journal of Finance
• Print ISSN: 1351-847X
• Electronic ISSN: 1466-4364
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 27
• Issue: 1-2
• Pages: 178-198
• DOI: https://doi.org/10.1080/1351847x.2020.1740287
• Keywords: Industry Portfolio; Regime Switching; Dynamic and Asymmetric Correlation JEL Classification: G11; G12; C61
• Public URL: https://nottingham-repository.worktribe.com/output/4083960
• Publisher URL: https://www.tandfonline.com/doi/abs/10.1080/1351847X.2020.1740287
• Additional Information: Peer Review Statement: The publishing and review policy for this title is described in its Aims & Scope.; Aim & Scope: http://www.tandfonline.com/action/journalInformation?show=aimsScope&journalCode=rejf20; Received: 2018-12-09; Accepted: 2020-02-25; Published: 2020-03-24