RT Journal Article
SR Electronic
T1 The Power of Dynamic Asset Allocation
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 47
OP 60
DO 10.3905/jpm.2014.40.3.047
VO 40
IS 3
A1 Mirko Cardinale
A1 Marco Navone
A1 Andrzej Pioch
YR 2014
UL https://pm-research.com/content/40/3/47.abstract
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