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.

The power of dynamic asset allocation

NAVONE, MARCO;
2014

Abstract

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.
2014
M., Cardinale; Navone, Marco; A., Pioch
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3974940
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