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International Conditional Asset Allocation under Real Time Uncertrainty

Author

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  • Laruent Barras

    (HEC, University of Geneva and FAME)

Abstract

This paper examines the impact of real time uncertainty on the performance of international mean-variance conditional asset allocation. This notion can be defined as the uncertainty faced by an investor regarding specification choices necessary to implement a conditional strategy. To assess the impact of this phenomenon, we investigate a comprehensive set of strategies based on several countries that an investor could reasonably consider. We find that real time uncertainty significantly reduces the performance of international conditional asset allocation. Our findings provide an explanation to the apparent paradox between the statistical and economic significance of predictability that has been previously documented. These results are consistent with the semi-strong form of market efficiency

Suggested Citation

  • Laruent Barras, 2005. "International Conditional Asset Allocation under Real Time Uncertrainty," FAME Research Paper Series rp153, International Center for Financial Asset Management and Engineering.
  • Handle: RePEc:fam:rpseri:rp153
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    File URL: http://www.swissfinanceinstitute.ch/rp53.pdf
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    References listed on IDEAS

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    5. Engle, Robert F. & Ng, Victor K. & Rothschild, Michael, 1990. "Asset pricing with a factor-arch covariance structure : Empirical estimates for treasury bills," Journal of Econometrics, Elsevier, pages 213-237.
    6. Longstaff, Francis A. & Santa-Clara, Pedro & Schwartz, Eduardo S., 2001. "Throwing away a billion dollars: the cost of suboptimal exercise strategies in the swaptions market," Journal of Financial Economics, Elsevier, vol. 62(1), pages 39-66, October.
    7. Knez, Peter J & Litterman, Robert & Scheinkman, Jose Alexandre, 1994. " Explorations into Factors Explaining Money Market Returns," Journal of Finance, American Finance Association, vol. 49(5), pages 1861-1882, December.
    8. Robert R. Bliss, 1997. "Movements in the term structure of interest rates," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 16-33.
    9. Goldstein, Robert S, 2000. "The Term Structure of Interest Rates as a Random Field," Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 365-384.
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    More about this item

    Keywords

    Conditional asset allocation; predictability; real time uncertainty; performance measurement;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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