Practical Applications Summary: Regime-Based versus Static Asset Allocation: Letting the Data Speak

• Regime shifts present a big challenge to traditional strategic asset allocation. This article investigates whether regimebased asset allocation can effectively respond to changes in financial regimes at the portfolio level, in an effort to provide better long-term results than more static approaches can offer. The authors center their regime-based approach around a regime-switching model with time-varying parameters that can match financial markets’ tendency to change behavior abruptly and the fact that the new behavior often persists for several periods after a change. In an asset universe consisting of a global stock index and a global government bond index, they show that, even without any level of forecasting skill, holding a static portfolio may not be optimal.

Ämnesord

NATURVETENSKAP  -- Matematik -- Sannolikhetsteori och statistik (hsv//swe)

NATURAL SCIENCES  -- Mathematics -- Probability Theory and Statistics (hsv//eng)

Nyckelord

Asset Allocation

Regime-Based Investing

Volatility Clustering

Daily Returns

Hidden Markov Model

Publikations- och innehållstyp

art (ämneskategori)

ref (ämneskategori)