Premium
International Dynamic Asset Allocation and Return Predictability
Author(s) -
Basu Devraj,
Oomen Roel,
Stremme Alexander
Publication year - 2010
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2010.02195.x
Subject(s) - predictability , asset allocation , market timing , exploit , context (archaeology) , asset (computer security) , value (mathematics) , economics , investment strategy , german , financial economics , microeconomics , computer science , portfolio , profit (economics) , physics , computer security , quantum mechanics , machine learning , history , archaeology , paleontology , biology
The presence of time varying investment opportunity sets has been documented in the context of international asset allocation, and the economic value associated with these is a topic of lively debate in the academic literature. This paper constructs simple, real‐time dynamic international asset allocation strategies based on daily data that exploit the return predictability arising from time varying market integration. Our timing strategies outperform the major (US, UK, Japanese and German) country indices and related portfolios, particularly in down markets. The strategies appear to capture much of the economic value of the return predictability implied by market integration and have many of the characteristics of successful timing strategies.