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Maximum utility portfolio construction in the forward freight agreement markets: Evidence from a multivariate skewed t copula
journal contributionposted on 2023-05-21, 13:29 authored by Gong, Y, Wang, X, Zhu, M, Ge, Y, Wenming ShiWenming Shi
We form portfolios consisting of diverse quarterly forward freight agreement (FFA) contracts to maximize the market participant's expected utility. The empirical findings indicate that individual FFA returns display clear autocorrelation, seasonality, fat tail, and heteroscedasticity. The multivariate positively skewed t copula is suggested for constructing maximum utility FFA portfolios, implying that the constituent FFA returns exhibit higher correlations when they rise together. The out-of-sample trading strategy performance metrics and various robustness checks further indicate that the aforementioned copula performs best and robustly for all portfolios. These findings provide profound methodological and managerial implications for market participants to improve risk management.
Publication titleThe Journal of Futures Markets
Department/SchoolAustralian Maritime College
PublisherJohn Wiley & Sons Inc
Place of publication111 River St, Hoboken, USA, Nj, 07030
Rights statement© 2022 Wiley Periodicals LLC.