PT  - JOURNAL ARTICLE
AU  - James L. Farrell, Jr.
TI  - Asset Allocation under Extreme Uncertainty
AID  - 10.3905/jpm.2011.37.2.072
DP  - 2011 Jan 31
TA  - The Journal of Portfolio Management
PG  - 72--82
VI  - 37
IP  - 2
4099  - https://pm-research.com/content/37/2/72.short
4100  - https://pm-research.com/content/37/2/72.full
AB  - Asset allocation is always a critical consideration for investors and is difficult to execute. Farrell notes that is especially so now, after coming out of the worst recession and most severe bear market since the 1930s. This market episode exposed the deficiency of standard risk control procedures such as, for example, international diversification. With extreme uncertainty as to how the economic environment might diverge with respect to inflation, deflation, and strong growth, the forecaster should assess how differing economic environments might impact risk and return for asset classes. In addition, the forecaster needs to assess the likelihood, or probability, of these scenarios occurring in order to determine how to best tilt asset classes in an allocation.TOPICS: Portfolio construction, portfolio theory, exchanges/markets/clearinghouses