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Strategic Asset Allocation and the Role of Alternative Investments

Author

Listed:
  • Douglas Cumming
  • Lars Helge Haß
  • Denis Schweizer

Abstract

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.

Suggested Citation

  • Douglas Cumming & Lars Helge Haß & Denis Schweizer, 2014. "Strategic Asset Allocation and the Role of Alternative Investments," European Financial Management, European Financial Management Association, vol. 20(3), pages 521-547, June.
  • Handle: RePEc:bla:eufman:v:20:y:2014:i:3:p:521-547
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    File URL: https://doi.org/10.1111/j.1468-036X.2012.00642.x
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:bracre:v:51:y:2019:i:1:p:1-23 is not listed on IDEAS
    2. Emmanouil Platanakis & Athanasios Sakkas & Charles Sutcliffe, 2017. "Should Portfolio Model Inputs Be Estimated Using One or Two Economic Regimes?," ICMA Centre Discussion Papers in Finance icma-dp2017-07, Henley Business School, Reading University.
    3. Platanakis, Emmanouil & Sakkas, Athanasios & Sutcliffe, Charles, 2019. "Harmful diversification: Evidence from alternative investments," The British Accounting Review, Elsevier, vol. 51(1), pages 1-23.

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