Some ideas for improving quality of the index tracking based on cointegration

    Damián Pastor Info
    Tomáš Sabol Info
    Jozef Glova Info

Abstract

Cointegration approach to the passive portfolio management enables to replicate the selected stock index and to construct a portfolio with profitability and risk similar to market. This paper analyzes several options for improving this method. It focuses on one of the key tasks, which is an estimate of long-run equilibrium relationship. Five different methods were proposed and compared. The results confirmed the relevance of using the Engle-Granger methodology in all previous surveys, but it also suggested some interesting properties related to the estimate of regression coefficients based on different variants of the Minkowski metric or to estimate regression equation without intercept.

Keywords:

Cointegration, cointegrating vector, long-run equilibrium relationship, Minkowski metric, Engle-Granger methodology, Johansen’s cointegration method

How to Cite

Pastor, D., Sabol, T., & Glova, J. (2016). Some ideas for improving quality of the index tracking based on cointegration. Business: Theory and Practice, 17(4), 325-333. https://doi.org/10.3846/btp.17.11128

Share

Published in Issue
November 10, 2016
Abstract Views
645

View article in other formats

CrossMark check

CrossMark logo

Published

2016-11-10

Issue

Section

Articles

How to Cite

Pastor, D., Sabol, T., & Glova, J. (2016). Some ideas for improving quality of the index tracking based on cointegration. Business: Theory and Practice, 17(4), 325-333. https://doi.org/10.3846/btp.17.11128

Share