Seminario Online Víctor DeMiguel

[:es]Título: Optimal Portfolio Diversification via Independent ComponentAnalysis
Ponente: Víctor DeMiguel (London Business School)
Organizador: Juan Fco Monge
Fecha: Lunes 4 de mayo a las 11:00 horas.
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Resumen:  A popular approach to enhance portfolio diversification is to use the factor-risk-parity portfolio, which is the portfolio whose return variance is spread equally among the principal components (PCs) of asset returns. Although PCs are unique and useful for dimension reduction, they are an arbitrary choice because any rotation of the PCs remains uncorrelated. This is problematic because we demonstrate that any portfolio isthe factor-variance-parity portfolio corresponding to a specific rotation ofthe PCs. To overcome this problem, we rely on the factor-risk-parity portfolio based on the independent components (ICs), which are the rotation of the PCs that are maximally independent, and thus, account for higher moments in asset returns. We demonstrate that using the IC-variance-parity portfolio helps to reduce the return kurtosis. We also show how to exploit the near independence of the ICs to parsimoniously estimate the factor-risk-parity portfolio based on Value-at-Risk. Finally, we empirically demonstrate that portfolios based on IC soutperform those based on PCs, and the minimum-variance portfolio.[:]