(R)Evolution of Asset Allocation

10 Pages Posted: 8 Oct 2011 Last revised: 11 Feb 2012

See all articles by Fabian Dori

Fabian Dori

Aquila Capital Group

Frank Haeusler

affiliation not provided to SSRN

David Stefanovits

affiliation not provided to SSRN

Date Written: October 6, 2011

Abstract

Asset allocation is at the heart of every portfolio construction process and crucial to its success. Though as diverse as they are innovative, the approaches used to pinpoint the optimal mix of assets mostly have common roots. In the following paper, we address this commonality in depth. First, we outline the portfolio construction process and highlight empirically the importance of asset allocation with respect to a portfolio's return. Second, the evolution of portfolio theory is put into a historical perspective. Third, we present a unified optimization framework for asset allocation and show that most well-known asset allocation techniques fit exactly in that framework. Finally, an illustrative example brings to light the similarities and differences of three prevalent approaches and highlights implications for practitioners.

Keywords: Asset Allocation, Risk Parity

JEL Classification: G10, G11, G15

Suggested Citation

Dori, Fabian and Haeusler, Frank and Stefanovits, David, (R)Evolution of Asset Allocation (October 6, 2011). Available at SSRN: https://ssrn.com/abstract=1939963 or http://dx.doi.org/10.2139/ssrn.1939963

Fabian Dori (Contact Author)

Aquila Capital Group ( email )

Valentinskamp 70
Hamburg, 20355
Germany

Frank Haeusler

affiliation not provided to SSRN ( email )

David Stefanovits

affiliation not provided to SSRN ( email )

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