RT Journal Article
SR Electronic
T1 An ICAPM Framework for Asset Allocation
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP jpm.2023.1.457
DO 10.3905/jpm.2023.1.457
A1 Mladina, Peter
YR 2023
UL http://jpm.pm-research.com/content/early/2023/01/06/jpm.2023.1.457.abstract
AB Asset allocation should rely on a sound theoretical foundation that is empirically valid and robust in practice. Intertemporal CAPM (ICAPM) portfolio theory resembles the hedging/return-seeking portfolios approach sometimes used in practice, but with a sound theoretical foundation, empirical support, and attractive features for functional implementation. ICAPM portfolio theory largely resolves key issues with modern portfolio theory and standard CAPM portfolio theory, while providing a unified framework for liability-relative, goals-based, and asset-only asset allocation. The author documents the application of ICAPM portfolio theory to practice, addressing key implementation and technical issues related to the liability hedge, risky-asset portfolio optimization and constraints, portfolio selection and Monte Carlo simulation, and extensions to goals-based and asset-only asset allocation.