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Cycle-Adjusted Capital market expectations under Black-Litterman framework in Global tactical asset allocation

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  • Mikaelian Anna

    (Financial University, Moscow)

Abstract

We propose an implementation of Black-Litterman allocation approach with views based on timevarying risk premiums during different phases of business cycle. To obtain views we define 5-phase business cycle taken from US economic history 1979–2012. Then we formulate stylized facts on assets classes’ comovement during different phases of business cycle and set simplistic rules for generating views based on mentioned facts. To predict phase of cycle we use methodology of 5-phase business cycle prediction based on key macroeconomic indicators analysis. We back-test both approaches and compare them to such classical asset allocation strategies performance, as market-equilibrium portfolio, equal-weighted “naive” diversification, 60/40 and other. We find that Black-Litterman allocation shows superior performance to almost all other allocation strategies during 1980–2011 years.

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  • Mikaelian Anna, 2013. "Cycle-Adjusted Capital market expectations under Black-Litterman framework in Global tactical asset allocation," Review of Business and Economics Studies, CyberLeninka;Федеральное государственное образовательное бюджетное учреждение высшего профессионального образования «Финансовый университет при Правительстве Российской Федерации» (Финансовый университет), issue 1, pages 89-99.
  • Handle: RePEc:scn:031730:14446086
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