THE OPTIMUM PORTFOLIO OF ASEAN STOCK MARKETS MARKOV SWITCHING MULTIVARIATE COPULA APPROACH

Roengchai Tansuchat

ABSTRACT: The economy of the developing countries in ASEAN (Developing ASEAN) was an international group that had been classified as interesting market for many investors especially when the Western countries experienced economic problems. The research question is how should investors allocate their investment in ASEAN+3 stock index under different situation? The objective of this paper is to construct the optimum portfolio of ASEAN Stock Markets by using Markov Switching Multivariate Gaussian Copula approach based on EGARCH model. The data comprised of stock price index returns from 8 major countries in ASEAN+3 namely, Malaysia, Thailand, Vietnam, Singapore, Indonesia, South Korea, Japan, and China. The data period was from Jan 1, 2007 – May 30, 2017. The result showed that ARMA-EGARCH with t-distribution model is fit to model the conditional volatility of stock return in every stock market. Second, the multivariate Gaussian Copula with regime switching were estimated. Finally, the optimal portfolio of each regime was estimated and suggested the optimum shares for each stock market. The Efficient frontier from each portfolio was d rawn.

Keywords: Optimum Portfolio, ASEAN Stock Markets, Multivariate Copula, Markov Switching Model, Value-at-Risk, Expected Shortfall.