Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92384
Authors: 
Brinkmann, Felix
Kempf, Alexander
Korn, Olaf
Year of Publication: 
2014
Series/Report no.: 
CFR Working Paper 13-08 [rev.]
Abstract: 
This paper provides implied measures of higher-order dependencies between assets. The measures exploit only forward-looking information from the options market and can be used to construct an implied estimator of the covariance, co-skewness, and co-kurtosis matrices of asset returns. We implement the estimator using a sample of US stocks. We show that the higher-order dependencies vary heavily over time and identify which driving them. Furthermore, we run a portfolio selection exercise and show that investors can benefit from the better out-of-sample performance of our estimator compared to various historical benchmark estimators. The benefit is up to seven percent per year.
Subjects: 
option-implied information
dependence measures
higher moments
portfolio selection
JEL: 
G11
G13
G17
Document Type: 
Working Paper

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