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Strategic Asset Allocation and the Role of Alternative Investments
Author(s) -
Cumming Douglas,
Helge Haß Lars,
Schweizer Denis
Publication year - 2014
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2012.00642.x
Subject(s) - robustness (evolution) , asset allocation , econometrics , economics , microeconomics , asset (computer security) , expected utility hypothesis , computer science , mathematical optimization , financial economics , mathematics , portfolio , biochemistry , chemistry , computer security , gene
We introduce a framework for strategic asset allocation with alternative investments. Our framework uses a quantifiable risk preference parameter, λ, instead of a utility function. We account for higher moments of the return distributions and approximate best‐fit distributions. Thus, we replace the empirical return distributions with two normal distributions. We then use these in the strategic asset allocation. Our framework yields better results than Markowitz's framework. Furthermore, our framework better manages regime switches that occur during crises. To test the robustness of our results, we use a battery of robustness checks and find stable results .