Strategic Asset Allocation and the Role of Alternative Investments

European Financial Management, Forthcoming

40 Pages Posted: 29 May 2012

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Lars Helge Hass

Lancaster University - Management School

Denis Schweizer

Concordia University

Date Written: January 5, 2012

Abstract

We introduce a framework for strategic asset allocation with alternative investments. Our framework uses a quantifiable risk preference parameter, λ, instead of a utility function. We account for higher moments of the return distributions and approximate best-fit distributions. Thus, we replace the empirical return distributions with two normal distributions. We then use these in the strategic asset allocation. Our framework yields better results than Markowitz’s framework. Furthermore, our framework better manages regime switches that occur during crises. To test the robustness of our results, we use a battery of robustness checks and find stable results.

Keywords: alternative investments, higher moments, strategic asset allocation

JEL Classification: G2, G12, G31

Suggested Citation

Cumming, Douglas J. and Hass, Lars Helge and Schweizer, Denis, Strategic Asset Allocation and the Role of Alternative Investments (January 5, 2012). European Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2068494

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Lars Helge Hass

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Denis Schweizer (Contact Author)

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

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