A Quant Approach to Tactical Asset Allocation

Discussion in 'Strategy Development' started by bubbrubb, Feb 12, 2007.

  1. bubbrubb

    bubbrubb

    Some may find this of interest:

    http://ssrn.com/abstract=962461

    Abstract:

    The purpose of this paper is to present a simple quantitative method that improves the risk-adjusted returns across various asset classes. A moving-average timing model is tested in-sample on the United States equity market and out-of-sample on more than twenty additional domestic and foreign markets. The approach is then examined since 1972 in an allocation framework utilizing a combination of diverse and publicly traded asset class indices including the Standard and Poor's 500 Index (S&P 500), Morgan Stanley Capital International Developed Markets Index (MSCI EAFE), Goldman Sachs Commodity Index (GSCI), National Association of Real Estate Investment Trusts Index (NAREIT), and United States Government 10-Year Treasury Bonds. The empirical results are equity-like returns with bond-like volatility and drawdown, and over thirty consecutive years of positive performance.
     
  2. Great paper - thanks.
     
  3. slacker

    slacker

    As returns on fixed-income investments decline I have been looking for places to park my non-trading money. This paper is very good. In school I remember a math case study of a bank using 'simplex programming' (similar to the excel solver tool) to move their overnight float into different accounts.

    With excel and better software tools and with funds like Rydex that charge no fees for switching it looks like a clear opportunity even for medium sized accounts.

    Has anyone used or developed a 'tactical asset allocation' along the lines of this paper or know of anyone (outside of hedge funds) doing this?

    Thanks for the article!