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The Economic Value of Distributional Timing

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Author Info

  • Eric Jondeau

    (University of Lausanne and Swiss Finance Institute)

  • Michael Rockinger

    (University of Lausanne and Swiss Finance Institute)

Abstract

We evaluate how non-normality of asset returns and the temporal evolution of volatility and higher moments affects the conditional allocation of wealth. We show that if one neglects these aspects, as would be the case in a mean variance allocation, a significant cost would arise. The performance fee the investor is willing to pay to benefit from our allocation is as high as the fee she is willing to pay to benefit from volatility timing. Many tests of robustness are performed, yet, the economic value of taking the non-normality and the temporal evolution of the distribution into account remains.

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File URL: http://ssrn.com/abstract=957514
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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 06-35.

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Length: 61 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:chf:rpseri:0635

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Web page: http://www.SwissFinanceInstitute.ch
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Related research

Keywords: Non-normality; volatility timing; distributional timing; GARCH; portfolio allocation;

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Cited by:
  1. Marie Briere & Alexandre Burgues & Ombretta Signori, 2008. "Volatility Exposure for Strategic Asset Allocation," Working Papers CEB 08-034.RS, ULB -- Universite Libre de Bruxelles.
  2. Luis García-Álvarez & Richard Luger, 2011. "Dynamic Correlations, Estimation Risk, And Porfolio Management During The Financial Crisis," Working Papers wp2011_1103, CEMFI.

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