International Dynamic Asset Allocation and Return Predictability

18 Pages Posted: 20 Sep 2010

See all articles by Devraj Basu

Devraj Basu

SKEMA Business School - Lille Campus

Roel C. A. Oomen

Deutsche Bank AG (London); London School of Economics & Political Science (LSE) - Department of Statistics

Alexander Stremme

University of Warwick - Finance Group

Abstract

The presence of time varying investment opportunity sets has been documented in the context of international asset allocation, and the economic value associated with these is a topic of lively debate in the academic literature. This paper constructs simple, real-time dynamic international asset allocation strategies based on daily data that exploit the return predictability arising from time varying market integration. Our timing strategies outperform the major (US, UK, Japanese and German) country indices and related portfolios, particularly in down markets. The strategies appear to capture much of the economic value of the return predictability implied by market integration and have many of the characteristics of successful timing strategies.

Suggested Citation

Basu, Devraj and Oomen, Roel C.A. and Stremme, Alexander, International Dynamic Asset Allocation and Return Predictability. Journal of Business Finance & Accounting, Vol. 37, No. 7-8, pp. 1008-1025, July/August 2010. Available at SSRN: https://ssrn.com/abstract=1677705 or http://dx.doi.org/10.1111/j.1468-5957.2010.02195.x

Devraj Basu (Contact Author)

SKEMA Business School - Lille Campus ( email )

Avenue Willy Brandt, Euralille
Lille, 59777
France

Roel C.A. Oomen

Deutsche Bank AG (London) ( email )

Winchester House
1 Great Winchester Street
London, EC2N 2DB
United Kingdom

London School of Economics & Political Science (LSE) - Department of Statistics ( email )

Houghton Street
London, England WC2A 2AE
United Kingdom

Alexander Stremme

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain
+44 (0) 2476 - 522 066 (Phone)
+44 (0) 2476 - 523 779 (Fax)

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