#2007-030A "Managing International Portfolios with Small Capitalization Stocks"
by Massimo Guidolin, and Giovanna Nicodano
August 2007

In the context of an international portfolio diversification problem, we find that small capitalization equity portfolios become riskier in bear markets, i.e. display negative co-skewness with other stock indices and high co-kurtosis. Because of this feature, a power utility investor ought to hold a well-diversified portfolio, despite the high risk premium and Sharpe ratios offered by small capitalization stocks. More...

#2006-028A "Investing for the Long-Run in European Real Estate"
by Carolina Fugazza, Massimo Guidolin, and Giovanna Nicodano
May 2006

We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different risk aversion levels, horizons, and statistical models capturing predictability in risk premia. Importantly, under one of the scenarios, the investor takes into account the parameter uncertainty implied by the use of estimated coefficients to characterize predictability. More...

PUBLISHED: Journal of Real Estate Finance and Economics, January 2007, 34(1), pp. 35-80

#2005-075B "Small Caps in International Equity Portfolios: The Effects of Variance Risk"
by Massimo Guidolin, and Giovanna Nicodano
December 2005
Revised August 2007

We show that predictable covariances between means and variances of stock returns may have a first order effect on portfolio composition. In an international asset menu that includes both European and North American small capitalization equity indices, we find that a three-state, heteroskedastic regime switching VAR model is required to provide a good fit to weekly return data and to accurately predict the dynamics in the joint density of returns. More...

FORTHCOMING: Annals of Finance