engleski

Building currency portfolios in Croatia: Multivariate GARCH approach

This paper addresses possibilities of forming and rebalancing currency portfolios in Croatia. Using daily data from January 2nd 2010 to October 12th 2015 for exchange rate on Euro, American Dollar and Swiss Franc against Croatian Kuna, several multivariate GARCH models will be examined. The goal is to find the best model which describes the movements of currency returns. This methodology enables us to model not only the currency volatilities, but also co-movements of volatilities as well. In that way, investor can estimate risks and hedge ratios on a daily basis and rebalance his portfolio accordingly. The results of the analysis indicate that the output from MGARCH methodology should be taken into account when forming and rebalancing portfolios.

exchange rate; portfolio; MGARCH; volatility; Croatian market

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