Dynamic Optimization for Equity and Dollar Asset: The Case of Japan

Abstract

This article examines the time-varying optimal portfolio weights for the two assets denominated in Japanese yen-the Nikkei 225 index and the yen-dollar rate-for four different periods from 1973 to 2023. Using a VAR-bivariate GARCH model and an optimization method, we uncover that in the more recent period, higher portfolio weights for the yen-dollar rate-a dollar asset for Japanese investors-were more efficient in constructing the Japanese equity and dollar asset portfolio.