Strategic Asset Allocation and the Role of Alternative Investments
York University - Schulich School of Business
Lars Helge Hass
Lancaster University Management School
WHU - Otto Beisheim School of Management
January 5, 2012
European Financial Management, Forthcoming
We introduce a framework for strategic asset allocation with alternative investments. Our framework uses a quantifiable risk preference parameter, λ, instead of a utility function. We account for higher moments of the return distributions and approximate best-fit distributions. Thus, we replace the empirical return distributions with two normal distributions. We then use these in the strategic asset allocation. Our framework yields better results than Markowitz’s framework. Furthermore, our framework better manages regime switches that occur during crises. To test the robustness of our results, we use a battery of robustness checks and find stable results.
Number of Pages in PDF File: 40
Keywords: alternative investments, higher moments, strategic asset allocation
JEL Classification: G2, G12, G31Accepted Paper Series
Date posted: May 29, 2012
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