Dual Focus on Systemic Risk in Portfolio Management

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dc.contributor.authorNeděla, David
dc.contributor.authorTichý, Tomáš
dc.contributor.otherEkonomická fakultacs
dc.date.accessioned2023-09-27T12:41:03Z
dc.date.available2023-09-27T12:41:03Z
dc.description.abstractIn 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.en
dc.formattext
dc.identifier.doi10.15240/tul/009/lef-2023-43
dc.identifier.isbn978-80-7494-627-1
dc.identifier.urihttps://dspace.tul.cz/handle/15240/172859
dc.language.isoen
dc.publisherTechnická Univerzita v Libercics
dc.publisherTechnical university of Liberec, Czech Republicen
dc.publisher.abbreviationTUL
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dc.relation.ispartofLiberecké ekonomické fórum 2023cs
dc.relation.ispartofLiberec Economic Forum 2023en
dc.subjectearly warning systemen
dc.subjectentropyen
dc.subjectsystemic risken
dc.subjectportfolio optimizationen
dc.subject.classificationG11
dc.subject.classificationG21
dc.titleDual Focus on Systemic Risk in Portfolio Managementen
dc.typeproceeding paperen
local.accessopen
local.citation.epage406
local.citation.spage396
local.facultyFaculty of Economics
local.fulltextyes
local.relation.abbreviationLEFcs
local.relation.abbreviationLEFen
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