Credit-Informed Tactical Asset Allocation

13 Pages Posted: 26 Jun 2011  

David Klein

Capital Context

Date Written: June 1, 2011

Abstract

This paper outlines a tactical asset allocation (TAA) strategy that takes signals from the credit markets and applies them to the stock market. A power model is built using the Russell 2000 equity index and the Bank of America/Merrill Lynch High Yield B index. This model is then used in a tactical asset allocation strategy to judge whether equities are expensive or cheap relative to high yield bonds. Based on back-test results from 1997 to the present, the approach provides equity-like returns while lowering portfolio volatility.

Keywords: Tactical Asset Allocation, Asset Allocation, Quantitative, Capital Structure Arbitrage, Credit Markets, Market Timing

JEL Classification: C00, C10, G00, G11

Suggested Citation

Klein, David, Credit-Informed Tactical Asset Allocation (June 1, 2011). Available at SSRN: https://ssrn.com/abstract=1872163 or http://dx.doi.org/10.2139/ssrn.1872163

David Klein (Contact Author)

Capital Context ( email )

Oakland, CA 94618
United States

HOME PAGE: http://capitalcontext.com

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