How Often Should You Take Tactical Asset Allocation Decisions?

39 Pages Posted: 7 Mar 2015

See all articles by Byeong-Je An

Byeong-Je An

Nanyang Technological University (NTU) - Division of Banking & Finance

Andrew Ang

BlackRock, Inc

Pierre Collin-Dufresne

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; National Bureau of Economic Research (NBER)

Date Written: March 5, 2015

Abstract

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

An, Byeong-Je and Ang, Andrew and Collin-Dufresne, Pierre, How Often Should You Take Tactical Asset Allocation Decisions? (March 5, 2015). Columbia Business School Research Paper No. 15-27. Available at SSRN: https://ssrn.com/abstract=2574512 or http://dx.doi.org/10.2139/ssrn.2574512

Byeong-Je An (Contact Author)

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1a-05 Nanyang Avenue
Singapore, 639798
Singapore

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Pierre Collin-Dufresne

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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