Liquidity regimes and optimal dynamic asset allocation
Autor: | Kent Daniel, Mehmet Sağlam, Pierre Collin-Dufresne |
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Rok vydání: | 2020 |
Předmět: |
040101 forestry
Economics and Econometrics 050208 finance Strategy and Management Bond 05 social sciences Risk parity Equity (finance) Asset allocation Dynamic asset allocation 04 agricultural and veterinary sciences Market timing Market liquidity Computer Science::Computational Engineering Finance and Science Accounting 0502 economics and business Economics Econometrics 0401 agriculture forestry and fisheries Portfolio Finance |
Zdroj: | Journal of Financial Economics. 136:379-406 |
ISSN: | 0304-405X |
DOI: | 10.1016/j.jfineco.2019.09.011 |
Popis: | We solve a portfolio choice problem when expected returns, covariances, and trading costs follow a regime-switching model. The optimal policy trades towards an aim portfolio given by a weighted-average of the conditional mean-variance-efficient portfolios in all future states. The trading speed is higher in more persistent, riskier, and higher-liquidity states. It can be optimal to overweight low Sharpe-ratio assets such as Treasury bonds because they remain liquid even in crisis states. We illustrate our methodology by constructing an optimal US equity market timing portfolio based on an estimated regime-switching model and on trading costs estimated using a large-order institutional trading data set. |
Databáze: | OpenAIRE |
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