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Strategic asset allocation and the role of alternative investments

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>06/2014
<mark>Journal</mark>European Financial Management
Issue number3
Number of pages27
Pages (from-to)521-547
Publication StatusPublished
Early online date19/03/12
<mark>Original language</mark>English


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.