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International Dynamic Asset Allocation and Return Predictability

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  • Devraj Basu
  • Roel Oomen
  • Alexander Stremme

Abstract

The presence of time varying investment opportunity sets has been documented in the context of international asset allocation, and the economic value associated with these is a topic of lively debate in the academic literature. This paper constructs simple, real‐time dynamic international asset allocation strategies based on daily data that exploit the return predictability arising from time varying market integration. Our timing strategies outperform the major (US, UK, Japanese and German) country indices and related portfolios, particularly in down markets. The strategies appear to capture much of the economic value of the return predictability implied by market integration and have many of the characteristics of successful timing strategies.

Suggested Citation

  • Devraj Basu & Roel Oomen & Alexander Stremme, 2010. "International Dynamic Asset Allocation and Return Predictability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 1008-1025, July.
    • Handle: RePEc:bla:jbfnac:v:37:y:2010:i:7-8:p:1008-1025
    DOI: 10.1111/j.1468-5957.2010.02195.x
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    References listed on IDEAS

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    Cited by:

    1. Wen Chen & Mozaffar Khan & Leonid Kogan & George Serafeim, 2021. "Cross‐firm return predictability and accounting quality," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 70-101, January.
    2. Patrick Bielstein, 2018. "International asset allocation using the market implied cost of capital," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(1), pages 17-51, February.
    3. Lu, Jin-Ray & Chan, Chih-Ming & Wen, Mei-Hui, 2012. "Which demands affect optimal international portfolio choices?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1292-1306.

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