Strategic Asset Allocation for Central Bank’s Management of Foreign Reserves: A new approach
AbstractThis paper proposes a new approach to strategic asset allocation for central banks’ management of foreign reserves. This eclectic approach combines the behavioural portfolio management in the framework of mean-variance mental accounting (MVMA) with the improvements on asset return forecast offered by the Black-Litterman (B-L) model, proving particularly suitable for the reserve management policy with multiple objectives. The B-L model is embedded into the MVMA framework to obtain both the equilibrium and the B-L returns as our improved forecasts, formulating forward-looking investment strategies. The approach is applied to the case of China to derive optimal asset allocation for the Chinese central bank.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43654.
Date of creation: 21 Dec 2012
Date of revision:
Reserve Management; Strategic Asset Allocation; Mental Accounting; Black-Litterman model; China’s Foreign Reserves;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- G0 - Financial Economics - - General
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-19 (All new papers)
- NEP-FOR-2013-01-19 (Forecasting)
- NEP-MON-2013-01-19 (Monetary Economics)
- NEP-TRA-2013-01-19 (Transition Economics)
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