Do investors gain from forecasting the asymmetric return co‐movements of financial and real assets?

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dc.contributor.authorMandal, Anandadeep
dc.contributor.authorPoshakwale, Sunil S.
dc.contributor.authorPower, Gabriel J.
dc.date.accessioned2020-08-10T15:15:17Z
dc.date.available2020-08-10T15:15:17Z
dc.date.freetoread2022-08-11
dc.date.issued2020-08-10
dc.description.abstractRecent research on asset allocation emphasizes the importance of considering non‐traditional asset classes such as commodities and real estate—the former for their diversification properties, and the latter due to its importance in the average investor's portfolio. However, modelling and forecasting asset return co‐movements is challenging because the dependence structure is dynamic, regime‐specific, and non‐elliptical. Moreover, little is known about the economic source of this time‐varying dependence or how to use this information to improve investor portfolios. We use a flexible framework to assess the economic value to investors of incorporating better forecasting information about return co‐movements between equities, bonds, commodities, and real estate. The dependence structure is allowed to be dynamic and non‐elliptical, while the state variables follow Markov‐switching stochastic volatility processes. We find that the predictability of return co‐movements is significantly improved by incorporating macro and non‐macroeconomic variables, in particular inflation uncertainty and bond illiquidity. The economic value added to investors is significant across levels of risk aversion, and the model outperforms traditional multivariate GARCH frameworks.en_UK
dc.identifier.citationMandal A, Poshakwale S, Power G. (2021) Do investors gain from forecasting the asymmetric return co‐movements of financial and real assets? International Journal of Finance and Economics, Volume 26, Issue 3, July 2021, pp. 3246-3268en_UK
dc.identifier.cris27758042
dc.identifier.issn1076-9307
dc.identifier.urihttps://doi.org/10.1002/ijfe.1961
dc.identifier.urihttp://dspace.lib.cranfield.ac.uk/handle/1826/15654
dc.language.isoenen_UK
dc.publisherWileyen_UK
dc.rightsAttribution-NonCommercial 4.0 International*
dc.rights.urihttp://creativecommons.org/licenses/by-nc/4.0/*
dc.subjectForecasten_UK
dc.subjectComovementen_UK
dc.subjectAsset allocationen_UK
dc.subjectPortfolio optimisationen_UK
dc.subjectEconomic value addeden_UK
dc.subjectVolatilityen_UK
dc.subjectCopulaen_UK
dc.subjectMarkov modelsen_UK
dc.subjectMacroeconomic variablesen_UK
dc.subjectRegimesen_UK
dc.titleDo investors gain from forecasting the asymmetric return co‐movements of financial and real assets?en_UK
dc.typeArticleen_UK

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