Dynamic Strategic Asset Allocation: Risk and Return Across Economic Regimes

Journal of Asset Management, Vol. 12, No. 5, pp. 360-375, 2011

Posted: 10 Oct 2011

See all articles by David Blitz

David Blitz

Robeco Asset Management - Quantitative Strategies

Pim van Vliet

Robeco Asset Management - Quantitative Investing

Multiple version iconThere are 2 versions of this paper

Date Written: October 10, 2011

Abstract

We propose a practical investment framework for dynamic asset allocation across different economic regimes, which we illustrate using a sample of U.S. data from 1948 to 2007. We identify four regimes in the economic cycle and find that these regimes capture pronounced time-variation in the risk and return properties of asset classes. Time-variation is also observed in the risk of a traditional, static strategic asset allocation portfolio. In order to stabilize risk across the economic cycle we propose a dynamic strategic asset allocation approach, which has the potential to enhance expected return as well. The proposed approach is found to be robust to variations in the variable composition of the regime model and can easily be extended with different economic variables and/or additional assets.

Keywords: asset allocation, TAA, economic regimes, business cycle, portfolio choice, time-varying risk, time-varying return

JEL Classification: C32, G11, C11

Suggested Citation

Blitz, David and van Vliet, Pim, Dynamic Strategic Asset Allocation: Risk and Return Across Economic Regimes (October 10, 2011). Journal of Asset Management, Vol. 12, No. 5, pp. 360-375, 2011. Available at SSRN: https://ssrn.com/abstract=1941777

David Blitz

Robeco Asset Management - Quantitative Strategies ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

Pim Van Vliet (Contact Author)

Robeco Asset Management - Quantitative Investing ( email )

Rotterdam, 3011 AG
Netherlands

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