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Regime-Based Versus Static Asset Allocation: Letting the Data Speak

Peter, Nystrup; Bo William, Hansson; Henrik, Madsen and Lindström, Erik LU (2015) In Journal of Portfolio Management 42(1). p.103-109
Abstract
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... (More)
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. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Journal of Portfolio Management
volume
42
issue
1
pages
103 - 109
publisher
Institutional Investor Journals Group
external identifiers
  • wos:000363998100009
  • scopus:84974679318
ISSN
0095-4918
DOI
10.3905/jpm.2015.42.1.103
language
English
LU publication?
yes
id
c2aa0f53-d2d3-48ba-9900-3906b009df57 (old id 8165472)
alternative location
http://www.iijournals.com/doi/abs/10.3905/jpm.2015.42.1.103
date added to LUP
2015-11-11 15:01:09
date last changed
2017-02-12 03:07:44
@article{c2aa0f53-d2d3-48ba-9900-3906b009df57,
  abstract     = {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.},
  author       = {Peter, Nystrup and Bo William, Hansson and Henrik, Madsen and Lindström, Erik},
  issn         = {0095-4918},
  language     = {eng},
  number       = {1},
  pages        = {103--109},
  publisher    = {Institutional Investor Journals Group},
  series       = {Journal of Portfolio Management},
  title        = {Regime-Based Versus Static Asset Allocation: Letting the Data Speak},
  url          = {http://dx.doi.org/10.3905/jpm.2015.42.1.103},
  volume       = {42},
  year         = {2015},
}