A0618
Title: On the time-varying factor model and its application on finding minimum variance portfolio
Authors: Chamika Porage - Uppsala University (Sweden) [presenting]
Yukai Yang - Uppsala University (Sweden)
Abstract: A previous time-varying factor model is suggested by allowing the factor loadings to be smooth functions of random variables under certain conditions. We devise the corresponding consistent test for structural changes in factor loadings. Based on the extended time-varying factor model, we propose a new time-varying minimum variance portfolio in a large investment universe of assets. The method is suitable for short-term risk forecasting and hedging under a time-varying factor loadings context.
