Garafutdinov R.V. FORMATION OF INVESTMENT PORTFOLIOS OF TWO ASSETS BASED ON FORECAST RETURNS USING THE ARFIMA-GARCH MODEL
DOI: https://doi.org/10.15688/ek.jvolsu.2021.2.11
Robert V. Garafutdinov
Postgraduate Student, Department of Information Systems and Mathematical Methods in Economics, Реrm State University, Bukireva St, 15, 614990 Perm, Russian Federation, This email address is being protected from spambots. You need JavaScript enabled to view it. , https://orcid.org/0000-0002-2130-9352
Abstract. The paper tests the hypothesis that the formation of investment portfolios of two assets based on predicted returns obtained using fractal models with conditional heteroscedasticity (ARFIMA-GARCH) allows to obtain portfolios with better characteristics than those obtained using the ARFIMA model. A computational experiment on artificial data and real data from the Russian stock market was carried out. The software implementation of the hypothesis testing algorithm was carried out using Python and R programming languages. The following results were obtained. Average absolute forecast error of the ARFIMA-GARCH model differs from the ARFIMA model error within the limits of error, statistically significant difference is not revealed (it is true for both model and real data). At the same time, portfolios formed using the GARCH model have, on average, higher returns, and a better return to risk ratio in comparison with portfolios formed using the ARFIMA model. Therefore, the hypothesis about the benefits of fractal GARCH models is not rejected.
Key words: investment portfolio, financial time series, return forecasting, fractal econometric models, ARFIMA, ARFIMA-GARCH.
FORMATION OF INVESTMENT PORTFOLIOS OF TWO ASSETS BASED ON FORECAST RETURNS USING THE ARFIMA-GARCH MODEL by Garafutdinov R.V. is licensed under a Creative Commons Attribution 4.0 International License.
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