Strategic Asset Allocation and the Role of Alternative Investments

27 Pages Posted: 18 Jun 2014

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Lars Helge Hass

Lancaster University - Management School; University of Iowa - Henry B. Tippie College of Business

Denis Schweizer

Concordia University

Date Written: June 2014

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

Suggested Citation

Cumming, Douglas J. and Hass, Lars Helge and Schweizer, Denis, Strategic Asset Allocation and the Role of Alternative Investments (June 2014). European Financial Management, Vol. 20, Issue 3, pp. 521-547, 2014, Available at SSRN: https://ssrn.com/abstract=2456037 or http://dx.doi.org/10.1111/j.1468-036X.2012.00642.x

Douglas J. Cumming (Contact Author)

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 )

Department of Accounting and Finance
Lancaster, LA1 4YX
United Kingdom

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States

Denis Schweizer

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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