Global Tactical Asset Allocation
Stockholm School of Economics; Centre for Economic Policy Research (CEPR); Institute for Financial Research (SIFR)
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
January 31, 2001
We provide a framework for using conditioning information in the process of global asset allocation. While we discuss strategies in a global setting, the same reasoning can be applied to other asset allocation programs with different investment objectives. We examine three levels of asset allocation: unconditional or benchmark allocation, strategic asset allocation, and tactical asset allocation. We show how to use conditioning information in the process of global tactical asset allocation. An important lesson emerges. There is considerable work documenting predictability of returns using past information variables. Many of these variables are related to the stage of the business cycle, and suggest that much of the predictability in these assets, or markets, are common. The fact that returns are predictable means that active asset allocation strategies can outperform passive strategies. Uncovering the predictability is challenging as it but allows managers to beat traditional benchmarks.
Number of Pages in PDF File: 22
Keywords: Benchmarks, strategic asset allocation, tactical asset allocation, dynamic trading strategies, return predictability, trading strategies, active management, passive management, business cycle, yield curve, term structure
JEL Classification: G12working papers series
Date posted: September 9, 2005
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