International Conditional Asset Allocation Under Specification Uncertainty

34 Pages Posted: 28 Jul 2010

See all articles by Laurent Barras

Laurent Barras

Universite du Luxembourg - Department of Finance

Date Written: September 1, 2006

Abstract

This paper examines the impact of specification uncertainty on the performance of international mean-variance conditional asset allocation. This notion is defined as the uncertainty faced by the investor regarding the specification choices necessary to implement a conditional strategy. To assess the impact of this phenomenon, we measure the performance of a group of strategies that the investor could reasonably consider. The strong performance variability across the strategies indicates that the gains previously documented are overstated. Our findings provide an explanation to the apparent paradox between the economic and statistical significance of predictability, and are consistent with the semi-strong form of market efficiency.

Keywords: Conditional Asset Allocation, Predictability, Specification Uncertainty, Performance Measurement

JEL Classification: G11

Suggested Citation

Barras, Laurent, International Conditional Asset Allocation Under Specification Uncertainty (September 1, 2006). Journal of Empirical Finance, Vol. 14, 2007, Available at SSRN: https://ssrn.com/abstract=1650067

Laurent Barras (Contact Author)

Universite du Luxembourg - Department of Finance ( email )

L-1511 Luxembourg
Luxembourg

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