A Century of Asset Allocation Crash Risk

58 Pages Posted: 6 Jan 2023 Last revised: 20 Jul 2023

See all articles by Mikhail Samonov

Mikhail Samonov

Two Centuries Investments

Nonna Sorokina

The Pennsylvania State University

Date Written: January 31, 2023


We extend proxies of the main asset allocation approaches back to 1926 using long-run return data for a variety of sub-asset classes and factors and test the long-term performance of U.S. and Global 60/40, Diversified Multi-Asset, Risk Parity, Endowment, Factor-Based and Dynamic Asset Allocation portfolios. While Factor-Based portfolios exhibit best traditionally measured risk-adjusted returns in the long run, the Dynamic Asset Allocation reduces the abandonment risk due to its lower expected drawdown. Across all strategies, risk-tolerant investors that rely on the longer history for setting their expectations, experience significantly better outcomes, particularly if their investment horizon includes times of crisis.

Keywords: Behavioral Finance, Risk Aversion, Investment Outcomes, Dynamic Asset Allocation, Risk Parity, Factor Investing, Endowment Model, Market Downturn, Drawdown

JEL Classification: G11, G12, G17

Suggested Citation

Samonov, Mikhail and Sorokina, Nonna, A Century of Asset Allocation Crash Risk (January 31, 2023). Available at SSRN: https://ssrn.com/abstract=4318157 or http://dx.doi.org/10.2139/ssrn.4318157

Mikhail Samonov

Two Centuries Investments ( email )

Princeton, NJ
United States

Nonna Sorokina (Contact Author)

The Pennsylvania State University ( email )

120 Ridgeview Dr
Dunmore, PA 18512-1602
United States
570-963-2662 (Phone)

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