Portfolio Management Modified by GARCH-Type Models and Moving Average Correlation in the Global Currency Market

The development of information and financial technologies offers a wide spectrum of opportunities in Internet trading and its automation in the global financial markets. An investor can use different approaches in his trading. Nowadays, there are lots of information sources about how to trade. Besides, available modern software can help in mathematical model building including econometric models providing wider their practical application. In this paper some GARCH-type models are used as a modification in risk and return evaluation in Markowitz portfolio building approach. Consequently a bibliography of research papers on GARCH-type models and other econometric ones during 30 years since they were introduced by Engle in 1982 would run to hundreds of pages, and it is hard to find the work that is most relevant to practitioners and especially in the field of speculative trading. hi this paper the authors use widely known Markowitz portfolio and modify it by GARCH-type models for operating expected risks and returns in the portfolio traded in the global currency market for speculative purposes. Also moving average correlation is used in the portfolio to predict interdependences between two currency pairs. Such modifications are compared with naive portfolio diversification.