TY - JOUR

T1 - Strategic asset allocation and the role of alternative investments

AU - Cumming, Douglas

AU - Hass, Lars Helge

AU - Schweizer, Denis

PY - 2014/6

Y1 - 2014/6

N2 - 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.

AB - 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.

KW - alternative investments

KW - higher moments

KW - strategic asset allocation

U2 - 10.1111/j.1468-036X.2012.00642.x

DO - 10.1111/j.1468-036X.2012.00642.x

M3 - Journal article

VL - 20

SP - 521

EP - 547

JO - European Financial Management

JF - European Financial Management

SN - 1354-7798

IS - 3

ER -