Industry portfolio allocation with asymmetric correlations

摘要

We develop a new framework of optimal consumption and portfolio choice at industry portfolio level under dynamic and asymmetric correlations between industry and market portfolios. We derive in closed form the optimal consumption and investment strategies under regime-dependent correlations environment. Overall, we find that ignoring time-varying and asymmetric correlations between portfolios can be costly to investors when applied to a construction of the optimal portfolio. Finally, we empirically test the performance of the model-based investment strategy.