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Protected Adaptive Asset Allocation

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  • Bellu, Mirko
  • Conversano, Claudio

Abstract

Protected Adaptive Asset Allocation (PAAA) is a tactical asset allocation model that targets an optimal risk/returns ratio using both a momentum index to capture the short-run dynamics and cash protection in negative market periods to reduce drawdowns. Empirical evidence shows that PAAA improves upon the performance of alternative models in terms of the risk/return profile when applied to a well-diversified dataset in the long term, based on the results of in/out-of-sample analyses, and when the analysis is restricted to a financial crisis period. For less diversified portfolios, PAAA is equivalent to an Adaptive Asset Allocation that includes a liquidity component.

Suggested Citation

  • Bellu, Mirko & Conversano, Claudio, 2020. "Protected Adaptive Asset Allocation," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612317306426
    DOI: 10.1016/j.frl.2019.01.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Adaptive Asset Allocation; Momentum; Cash protection; Sharpe ratio; Modern Portfolio Theory; Portfolio management;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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