Index tracking strategies using Cointegration: A comparison with tracking error variance minimization model - Softcover

Fedele, Luca

Softcover

ISBN 10: 3844323481 ISBN 13: 9783844323481

Publisher: LAP LAMBERT Academic Publishing, 2011

Synopsis

I present a detailed study of portfolio optimization based on cointegration, a statistical tool that exploits a long-run equilibrium relationship between stock prices and an index price. I compare the theoretical and empirical properties of cointegration optimal equity portfolios with those of portfolios optimized on the tracking error variance. From a nine year out of sample performance analysis I found that cointegration optimal portfolios clearly dominate the TEV equivalents for all of the strategies based on enhanced indexation,. Moreover, I provide some information regarding the performance of financial markets and the equity Italian funds of the last ten years. Finally, I deepen my research with a comparison between an index fund managed by Soprano SGR and the cointegration based portfolio. From a two year out of sample analysis, my tracking portfolios dominate both benchmark, the DJ Stoxx 50, and the Soprano fund.

About this title

About the Author

LUCA FEDELE holds degrees from University Luigi Bocconi (undergraduate degree in finance; MSc in Finance). He worked as financial advisor and economist at an investment firm located in Chile. He currently is the portfolio manager of the pension fund managed by BBVA Chile Asset Management. This paper is his first published work.

Edition details

• Publisher: LAP LAMBERT Academic Publishing
• Publication date: 2011
• Language: English
• ISBN 10: 3844323481
• ISBN 13: 9783844323481
• Binding: Paperback
• Number of pages: 68