Dynamic Allocation or Diversification : A Regime-Based Approach to Multiple Assets
Nystrup, Peter ; Hansen, Bo William ; Olejasz Larsen, Henrik ; Madsen, Henrik and Lindström, Erik LU
(2017)
In Journal of Portfolio Management
44(2).
p.62-73
- Abstract
- This article investigates whether regime-based asset allocation can effectively respond to changes in financial regimes at the portfolio level in an effort to provide better long-term results when compared to a static 60/40 benchmark. The potential benefit from taking large positions in a few assets at a time comes at the cost of reduced diversification. The authors analyze this trade-off in a multi-asset universe with great potential for static diversification. The regime-based approach is centered around a regime-switching model with time-varying parameters that can match financial markets’ behavior and a new, more intuitive way of inferring the hidden market regimes. The empirical results show that regime-based asset allocation is... (More)
- This article investigates whether regime-based asset allocation can effectively respond to changes in financial regimes at the portfolio level in an effort to provide better long-term results when compared to a static 60/40 benchmark. The potential benefit from taking large positions in a few assets at a time comes at the cost of reduced diversification. The authors analyze this trade-off in a multi-asset universe with great potential for static diversification. The regime-based approach is centered around a regime-switching model with time-varying parameters that can match financial markets’ behavior and a new, more intuitive way of inferring the hidden market regimes. The empirical results show that regime-based asset allocation is profitable, even when compared to a diversified benchmark portfolio. The results are robust because they are based on available market data with no assumptions about forecasting skills. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/f2308bb6-ff01-42e4-a1d1-3a7521bf0962
- author
- Nystrup, Peter
; Hansen, Bo William
; Olejasz Larsen, Henrik
; Madsen, Henrik
and Lindström, Erik
LU
- organization
- publishing date
- 2017
- type
- Contribution to journal
- publication status
- published
- subject
- in
- Journal of Portfolio Management
- volume
- 44
- issue
- 2
- pages
- 12 pages
- publisher
- Institutional Investor Journals Group
- external identifiers
-
- scopus:85041288600
- ISSN
- 0095-4918
- DOI
- 10.3905/jpm.2018.44.2.062
- language
- English
- LU publication?
- yes
- id
- f2308bb6-ff01-42e4-a1d1-3a7521bf0962
- date added to LUP
- 2018-02-12 14:36:41
- date last changed
- 2022-04-25 05:33:33
@article{f2308bb6-ff01-42e4-a1d1-3a7521bf0962,
abstract = {{This article investigates whether regime-based asset allocation can effectively respond to changes in financial regimes at the portfolio level in an effort to provide better long-term results when compared to a static 60/40 benchmark. The potential benefit from taking large positions in a few assets at a time comes at the cost of reduced diversification. The authors analyze this trade-off in a multi-asset universe with great potential for static diversification. The regime-based approach is centered around a regime-switching model with time-varying parameters that can match financial markets’ behavior and a new, more intuitive way of inferring the hidden market regimes. The empirical results show that regime-based asset allocation is profitable, even when compared to a diversified benchmark portfolio. The results are robust because they are based on available market data with no assumptions about forecasting skills.}},
author = {{Nystrup, Peter and Hansen, Bo William and Olejasz Larsen, Henrik and Madsen, Henrik and Lindström, Erik}},
issn = {{0095-4918}},
language = {{eng}},
number = {{2}},
pages = {{62--73}},
publisher = {{Institutional Investor Journals Group}},
series = {{Journal of Portfolio Management}},
title = {{Dynamic Allocation or Diversification : A Regime-Based Approach to Multiple Assets}},
url = {{http://dx.doi.org/10.3905/jpm.2018.44.2.062}},
doi = {{10.3905/jpm.2018.44.2.062}},
volume = {{44}},
year = {{2017}},
}