Strategic Asset Allocation

By D. Iverson. 2013

317 citations recorded by the source corpus.

Investment strategy is often viewed as synonymous with asset allocation.1 Asset allocation answers what asset classes to invest in and what would be an optimal mix of these. A large body of economic research suggests that asset allocation is the main driver of investment performance and that the added value provided by the selection of a particular asset within the class is minimal. While this may be debatable in the case of private equity, where selection is still viewed to be paramount, asset allocation is nevertheless a key concept in investing. Its fundamental justification is the notion that different asset classes perform differently in different market and economic conditions, and as a consequence, this type of diversification has been described as the ‘only free lunch’ available in financial markets.

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Citations in the corpus

Stock Return Serial Dependence and Out-of-Sample Portfolio Performance (2014, background): “Finally, a number of papers have documented the presence of cross-covariances, where the magnitude is related to factors such as firm size (Lo and MacKinlay (1990)), firm size within industries (Hou (2007)), trading volume (Chordia and Swaminathan (2000)), analyst coverage (Brennan et al.”
Local Currency Sovereign Risk (2013, unknown): “As demonstrated in Campbell and Viceira (2002), the first-order condition of an arbitrageur’s optimal portfolio decision is given by Etrt+1 − y∗t + 1 2 σ2t = γaV αt where rt+1 is a column vector of one-period log returns of the swapped LC and FC bonds, σ2t is the variance of log excess returns, V…”
Predictability of stock returns and asset allocation under structural breaks (2011, unknown): “Ferson and Schadt (1996), Farnsworth, Ferson, Jackson, and Todd (2002)) and, most notably, in a large literature on optimal asset allocation under time-varying investment opportunities.2 Investors attempting to exploit such predictability in returns encounter several sources of uncertainty. Most obv”
Risk parity portfolios with risk factors (2016, background): “This index is composed of 10 subindexes: (1) convertible arbitrage, (2) dedicated short bias, (3) emerging markets, (4) equity market neutral, (5) event driven, (6) fixed income arbitrage, (7) global macro, (8) long/short equity, (9) managed futures and (10) multi-strategy.”
Optimal Financial Knowledge and Wealth Inequality (2017, unknown): “The return on the safe asset is set to r =2 percent (following Campbell and Viceira, 2002).”