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A Risk Based Approach to Tactical Asset Allocation

27 Pages Posted: 28 Nov 2011 Last revised: 8 Dec 2011

Stefano Colucci

Symphonia Sgr; University of Rome III - Department of Business Studies

Dario Brandolini

University of Turin

Date Written: November 28, 2011

Abstract

Faber’s 'A Quantitative Approach to Tactical Asset Allocation' (2009) proposes the use of a very simple trading rule to improve the risk-adjusted returns across various asset classes. The purpose of this paper is to present an alternative and simple quantitative risk based portfolio management that improves the risk-adjusted portfolio returns across various asset classes. This approach, based on the conclusions of Brandolini D. – Colucci S. 'Backtesting Value-at-Risk: A comparison between Filtered Bootstrap and Historical Simulation', has been tested since 1974 for calibration and since 2000 in a real backtest. The asset allocation framework is using a combination of indices, including the Standard&Poors 500, Topix, Dax, MSCI United Kingdom, MSCI France, Italy Comit Globale, MSCI Canada, MSCI Emerging Markets , RJ/CRB, Merril Lynch U.S. Treasuries, 7-10 Yrs , and all indices are expressed in US Dollar. Since 2000 the empirical results present equity-like returns with lower volatility and drawdown and only one negative year both in gross and net of costs returns.

Keywords: asset allocation, expected shortfall, filtered bootstrap, VaR, GDP

JEL Classification: G11, G23, C15

Suggested Citation

Colucci, Stefano and Brandolini, Dario, A Risk Based Approach to Tactical Asset Allocation (November 28, 2011). Available at SSRN: https://ssrn.com/abstract=1965423 or http://dx.doi.org/10.2139/ssrn.1965423

Stefano Colucci (Contact Author)

Symphonia Sgr ( email )

via Gramsci 7
Torino, Torino 10144
Italy

University of Rome III - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, RM 00145
Italy

Dario Brandolini

University of Turin ( email )

Via Po 53
Torino, Turin - Piedmont 10100
Italy

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