Questions tagged [asset-allocation]

An investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame.

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Are heuristic portfolios efficient portfolios?

Markowitz's definition of an efficient portfolio is one that minimizes portfolio risk for a given level of expected return. He therefore calls portfolios along the efficient frontier "frontier ...
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Tail Risk Hedging for Public Pension Plan

Very simplistically, ERISA rules require corporate pension plans to use market rates to discount their liabilities. If interest rates go up, the value of their pension liabilities goes down. Since ...
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"Better" forecasts lead to worse asset allocation performance

Short version If you're trying to produce an asset allocation system, it feels pretty natural to split it into an estimation component that forecasts asset means and covariance, and a weighting ...
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Modelling log-returns and calculating the portfolio return

I know this might be a trivial question, however, I would be grateful for some clarification. I am working on weekly log-return data, doing volatility-foracasting using GARCH models and then using ...
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Quantitative method to select tactical bands for asset allocation

Do you know a study with a methodology for selecting tactical bands (or the allowed deviation from a strategic asset allocation)? Thanks
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French and Fama - Alpha vs Residuals (Error)

When running a regression to empirically test models like CAPM or the Fama and French Model, why do we test the statistical significance of the intercept? Do we ignore the residual error? Why not ...
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How to reduce a covariance matrix after clustering?

I have an N = 100 covariance matrix. I am clustering the covariance matrix say into 5 clusters. How can I compute the reduced ...
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Residual Risk and Variance

I've solved part a, but am struggling with b and c. $x_m$ is the market portfolio vector, and I think $T$ should be a diagonal matrix. Any hints greatly appreciated!
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Black-Litterman proof with P=I and Omega=tau*Sigma

Elsewhere on this site (link), Richard notes that \begin{equation} \Pi_{BL} = \frac{1}{2} \Pi + \frac{1}{2}Q, \end{equation} so long as we set $ P = I $ (where $I$ is the identity matrix) and $\Omega ...
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Looking for: List of 30 top-performing value investors in the US (AUM 100USD mn+; 10 years)

we are currently looking to build another database sourced by crawling the SEC (freely available at SimFin). Our goal is to build a monthly updating database showing the holdings of the top value-...
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backtest asset allocation strategies

I've searched the site but haven't found an easy way to backtest my personal portfolio allocations. Suppose I want to know the total return for the following portfolio from Jan 1, 2009 to Dec 31, 2014:...
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Does it make sense to have an allocation to short term fixed income and a leveraged or unfunded position?

This may sound like a basic question but I have seen many large institutional investors have this as part of their asset allocation and am wondering why they do this? Does it make sense to have a ...
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ML/DS in fixed income asset management

I am new to the topic but I would like to read papers/books/anything interesting to learn more how ML and data science is used in buy side Fixed income Asset management firms. Factor investing/signals/...
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Portfolio Performance Attribution Using Carino Smoothing

I'm trying to conduct portfolio performance attribution using Carino smoothing, but it seems that the active returns do not match and I don't know why. Here is the example I use: \begin{array} {|r|r|r|...
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Equivalent constructions of risk budgeted portfolios?

When building an ERC portfolio given covariance $S$, I am familiar with the approach in optimalPortfolio. It takes the risks of a given weight vector $(w_i * (S w)_i)$, divides it by total risk to get ...
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Crisis in in-sample period

I am backtesting a value momentum asset allocation strategy and my in sample period is from 2003 to 2011 and out sample from 2012 to 2019. I am optimising a cutoff for value on in sample to allocate ...
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Problems with Black-Litterman: negative portfolio weights, and very poor returns

I am trying to implement the Black-Litterman model using own-defined views matrix (from consensus analysts). However, I have encountered the problems of negative portfolio weights in some periods, and ...
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Mean Variance Optimization of 2000 pairs of securities (Python)

I would like to take the opportunity to ask for your help on an assignment I'm trying to complete. For this 'Modern Robo Advisory' course we are asked to solve a (target) goal-based investment ...
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Is the 'constant weight in the risky asset' portfolio-strategy self-financing?

My question concerns a topic in quantitative finance that I feel is often brushed under the table: is a given strategy self-financing. We have two assets, one risky and one riskless, defined by the ...
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Target date funds - glide path quantitative foundations?

Are there any introductions that show an academic proof or quantitative process for determining the proper asset allocations for a glide-path in a target date fund? I've been trying to find something ...
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Asset allocation and GARCH models

I am trying to solve an asset allocation problem and I am having some troubles grasping the concept. I am working with excess returns on 4 stock indices and I am obtaining the excess returns forecasts ...
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Continuous Kelly Criteria application

I am exploring the use of the Kelly Criterion for an institutional portfolio, namely a pension fund. For a continuous outcome process, the Kelly Optimal Proportion to invest into the risky asset at ...
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Information Ratio Confusion in Grinold's Signal Weighting Paper

In the procedure Grinold outlines in his 2010 paper "Signal Weighting" for optimally combinining $J$ raw alphas, $\mathbf{a}_j$, he first assumes each $\mathbf{a}_j$ has been scaled so its ...
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Sampling in Portfolio Optimization

I recently came across the following method for portfolio optimization: Let $Y$ be a random variable that describes the returns of $n$ assets. Fix a constraint matrix $A \in \mathbb{R}^{m \times n}$ ...
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How do I have to calculate the risk free rate of my two asset portfolio?

Good afternoon everyone! I have a question regarding the risk free rate of my two asset portfolio. For my course, we have to create a two asset portfolio with the time frame of 2015-2020 with monthly ...
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Minimize Composite Dispersion

Let's say that we have a composite of 10 fixed income portfolios, each with the same benchmark, the US Aggregate. Additionally, let's say that each portfolio has a position in Corporation ABC. The ...
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Calculating the eigenvector centrality of a portfolio described by a minimum spanning tree

I am working with the eigenvector centrality of a minimum spanning tree, which can be calculated as: v(i) = lambda^-1 * sum[Omega(i,j)*v(j)] where: ...
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Decomposition of Contribution to Variance

$C$ is a $N\times N$ covariance matrix of stock returns. Assuming $w$ is a vector of positions in each asset, the total variance of the portfolio is $$w^TCw$$ The contribution to total variance of the ...
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How long a time horizon should be for verifying the effectiveness of an investment strategy?

Question To verify the effectiveness of a certain asset allocation strategy, how long a time horizon should be? Is there any academic paper regarding this topic? Question in more detial I know ...
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Capital Allocation, VaR, Expected Shortfall

Are there any serious drawbacks / weaknesses in the Euler allocation method, when used to allocate VaR capital (and potentially Expected Shortfall) to risk factors in a portfolio? I notice that ...
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Math basics of Equally-weighted Risk contributions

i'm writing my BA Thesis about "Equally-weighted Risk contributions". Can anyone recommend math books for further understanding of Risk contributions?
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