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Black-Litterman model - Sensitivity of the optimal portfolio allocation with respect to changes in the level of confidence in expressed views

Oderud, Niklas LU (2012) NEKH01 20121
Department of Economics
Abstract
This paper investigates the sensitivity of portfolio distributions generated by the Black-Litterman model for changes in the confidence level in the investors’ views. The empirical study is performed in an investment universe consisting of assets formed on size and book-to-market value. In this framework the sensitivity of the popular investment strategies of value stocks versus growth stocks and small firms versus large firms is investigated and compared. We find that changes in the confidence level of views may have dramatic effects on the portfolio allocations and furthermore that some investment strategies may be more sensitive than others to changes in the level of confidence expressed in the views.
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author
Oderud, Niklas LU
supervisor
organization
course
NEKH01 20121
year
type
M2 - Bachelor Degree
subject
keywords
Black-Litterman, Asset allocation, Bayesian portfolio selection, Modern Portfolio Theory.
language
English
id
2702093
date added to LUP
2012-06-15 12:43:13
date last changed
2012-06-15 12:43:13
@misc{2702093,
  abstract     = {This paper investigates the sensitivity of portfolio distributions generated by the Black-Litterman model for changes in the confidence level in the investors’ views. The empirical study is performed in an investment universe consisting of assets formed on size and book-to-market value. In this framework the sensitivity of the popular investment strategies of value stocks versus growth stocks and small firms versus large firms is investigated and compared. We find that changes in the confidence level of views may have dramatic effects on the portfolio allocations and furthermore that some investment strategies may be more sensitive than others to changes in the level of confidence expressed in the views.},
  author       = {Oderud, Niklas},
  keyword      = {Black-Litterman,Asset allocation,Bayesian portfolio selection,Modern Portfolio Theory.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Black-Litterman model - Sensitivity of the optimal portfolio allocation with respect to changes in the level of confidence in expressed views},
  year         = {2012},
}