Purpose

The purpose of this study is to provide a new way to optimize a portfolio and to show that combining the Hurst exponent and wavelet analysis may help to increase portfolio returns.

Design/methodology/approach

The authors use the Hurst exponent and wavelet analysis to study the long-term dependencies between sovereign bonds and sectoral indices of India. The authors further construct and evaluate the performance of three portfolios constructed on the basis of Hurst standard deviation (SD) – global minimum variance (GMV), most diversified portfolio (MDP) and equal risk contribution (ERC).

Findings

The authors find that an ERC portfolio generates positive superior return as compared other two. Since our sample includes periods of two crisis – post-2007 financial crisis and the ongoing pandemic, this study reveals that combining government bond with equities and gold provides a higher returns when the portfolios are constructed using the risk exposures of each asset in the overall portfolio risk.

Practical implications

The findings provide guidance to portfolio managers by helping them to select assets using the Hurst approach and wavelet analysis thereby increasing the portfolio returns.

Originality/value

In this study, the authors use a combination of Hurst exponent and wavelet analysis to understand the long-term dependencies among various assets and provide a new methodology to optimize a portfolio. As far as the authors’ knowledge, no study in the past has attempted to provide a joint framework for portfolio optimization and therefore this study is the first to apply this methodology.

中文翻译：

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印度主权债券与行业指数之间的长期依赖：使用赫斯特指数和小波分析的证据

目的

本研究的目的是提供一种优化投资组合的新方法，并表明结合 Hurst 指数和小波分析可能有助于提高投资组合回报。

设计/方法/方法

作者使用 Hurst 指数和小波分析来研究印度主权债券与部门指数之间的长期依赖关系。作者进一步构建并评估了基于 Hurst 标准差 (SD)——全局最小方差 (GMV)、最多元化投资组合 (MDP) 和等风险贡献 (ERC) 构建的三个投资组合的表现。

发现

作者发现，与其他两个投资组合相比，ERC 投资组合产生了正的超额回报。由于我们的样本包括两次危机时期——2007 年后金融危机和持续的大流行，因此本研究表明，当使用整体投资组合中每项资产的风险敞口构建投资组合时，将政府债券与股票和黄金相结合可提供更高的回报风险。

实际影响

研究结果通过帮助他们使用 Hurst 方法和小波分析选择资产从而提高投资组合回报，为投资组合经理提供指导。

原创性/价值

在这项研究中，作者结合使用 Hurst 指数和小波分析来了解各种资产之间的长期依赖关系，并提供一种优化投资组合的新方法。就作者所知，过去没有任何研究试图为投资组合优化提供联合框架，因此本研究是第一个应用这种方法的研究。