PT - JOURNAL ARTICLE AU - Mirko Cardinale AU - Marco Navone AU - Andrzej Pioch TI - The Power of Dynamic Asset Allocation AID - 10.3905/jpm.2014.40.3.047 DP - 2014 Apr 30 TA - The Journal of Portfolio Management PG - 47--60 VI - 40 IP - 3 4099 - https://pm-research.com/content/40/3/47.short 4100 - https://pm-research.com/content/40/3/47.full AB - This article re-assesses the evidence and practical relevance of asset returns’ long-horizon predictability, investigating whether practitioners can profitably exploit predictability patterns by using relatively simple, dynamic asset allocation strategies. The analysis shows forward-looking models that rely on steady-state equations for equities and initial yields to maturity for bonds are far better predictors of markets’ long-run direction than is the industry’s conventional approach, which involves extrapolating from historical averages. Using a long-term U.S. sample from 1926 to 2010, the authors find that predictability translates into significantly better risk-adjusted performance from dynamic asset allocation strategies that rely on forward-looking inputs.TOPICS: Portfolio management/multi-asset allocation, statistical methods, accounting and ratio analysis