Risk-Based Dynamic Asset Allocation with Extreme Tails and Correlations
3 Pages Posted: 14 Jan 2012 Last revised: 10 Aug 2012
Date Written: March 5, 2012
We propose a unique dynamic portfolio construction framework that improves portfolio performance by adjusting asset allocation in accordance with a forecast of market risk. We find that modifying asset allocation according to our market risk barometer offers investors the promising opportunity to meaningfully enhance portfolio performance across market environments.
Keywords: Extreme Tail Risk, CVaR Optimization, Regime Change, Markov Switching Model, Dynamic Asset Allocation, TAA
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