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Market Volatility, Optimal Portfolios and Naive Asset AllocationsMassimiliano CaporinUniversity of Padova - Department of Economics and Management "Marco Fanno" Loriana PelizzonCa Foscari University of Venice - Department of Economics June 15, 2012 Ca Foscari University of Venice Working Paper No. 08/WP/2012 Abstract: This paper investigates the impact of a financial turmoil on the performances of traditional, and naive, asset allocation strategies. We compare over a long time span (lasting for the last 60 years) the 1/N portfolio with mean-variance optimal portfolio strategies. Our analyses consider several datasets, and different approaches for the estimation of expected returns, starting from simple historical moments to the use of predictable variables, mean reversion or both. By employing rolling estimation approaches and robust Sharpe ratio testing we determine if during different market volatility states calibrated portfolios perform better than optimally determined allocations.
Number of Pages in PDF File: 18 Keywords: mean reversion, strategy preference, 1/N, predictability, testing Sharpe equivalence JEL Classification: G11 working papers seriesDate posted: July 10, 2012 ; Last revised: October 3, 2012Suggested CitationContact Information
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