Joint modelling of commodity and equity prices increases portfolio volatility
Joint modelling of commodity and equity prices produces more accurate point and density forecasts, which lead to substantial benefits in portfolio allocation, a recent working paper by the Bank for International Settlements (BIS) finds.
According to the paper, On the Correlation Between Commodity and Equity Returns: Implications for Portfolio Allocation by Marco Jacopo Lombardi and Francesco Ravazzolo, which uses a time-varying Bayesian Dynamic Conditional Correlation model for volatilities and
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