The Economic Value of Distributional Timing
AbstractWe 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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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 06-35.
Length: 61 pages
Date of creation: Nov 2006
Date of revision:
Non-normality; volatility timing; distributional timing; GARCH; portfolio allocation;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-20 (All new papers)
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- Marie Briere & Alexandre Burgues & Ombretta Signori, 2008. "Volatility Exposure for Strategic Asset Allocation," Working Papers CEB 08-034.RS, ULB -- Universite Libre de Bruxelles.
- 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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