Strategic Asset Allocation

48 Pages Posted: 29 Jun 2013  

Karl Eychenne

Lyxor Asset Management

Stéphane Martinetti

Lyxor Asset Management

Thierry Roncalli

Amundi Asset Management; University of Evry

Date Written: March 2011

Abstract

To implement strategic asset allocation, we must determine risk and return expectations for the various asset classes. Starting from the paradigm that long-run asset returns are determined by the long-run fundamentals of the economy, a fair value approach to building expectations is crucial. This paper proposes to formalize a quantitative and systematic methodology for optimizing portfolios, from the determination of long-run fundamental pillars, through the modeling of asset returns and the assessment of market risks. We apply forecasting models and build in the specific of the main asset classes, (equities, bonds and alternative investments), depending on the uncertainties they represent for the risk-averse investor. Our resulting allocations, within the equity asset class and with regard to the place of alternative investments, question the choices of long-term institutional investors, such as pension funds that have shifted their long-run allocations in response to the recent financial crisis.

Keywords: long-term investment policy, strategic asset allocation, tactical asset allocation, risk premium, long-run economic growth, Solow model, Phillips curve

JEL Classification: E20, E50, G11

Suggested Citation

Eychenne, Karl and Martinetti, Stéphane and Roncalli, Thierry, Strategic Asset Allocation (March 2011). Available at SSRN: https://ssrn.com/abstract=2154021 or http://dx.doi.org/10.2139/ssrn.2154021

Karl Eychenne

Lyxor Asset Management ( email )

Paris
France

Stéphane Martinetti

Lyxor Asset Management ( email )

Paris
France

Thierry Roncalli (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

University of Evry ( email )

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

Register to save articles to
your library

Register

Paper statistics

Downloads
874
rank
23,661
Abstract Views
2,291
PlumX