How Often Should You Take Tactical Asset Allocation Decisions?
39 Pages Posted: 7 Mar 2015
Date Written: March 5, 2015
About once a quarter. We compute optimal tactical asset allocation (TAA) policies over equities and bonds when both asset returns are predictable. By varying how often the weights are reset, we estimate the benefits and costs of different frequencies of TAA decisions. Tactical tilts taking advantage of predictable stock returns generate approximately twice as much value as those market-timing bond returns.
Keywords: market timing, return predictability, portfolio choice, dynamic asset allocation, time-varying policy portfolio, hedging demands
JEL Classification: G11, G12
Suggested Citation: Suggested Citation