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Predictability in Strategic Asset Allocation

Author

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  • Lee, Woongki

    (Yonsei University)

Abstract

The benchmark chosen under strategic asset allocation serves as the fund’s long-term target, while the actual portfolio composition fluctuates around that target over time. When active managers adjust portfolio weights in response to forecasts of benchmark returns, return predictability becomes valuable because it creates opportunities for effective short-term tactical adjustment. Predictability therefore enters utility as a distinct source of benefit. This role of predictability is not captured by the traditional mean-variance framework. The study therefore extends that framework by introducing predictability directly into the analysis. The resulting mean-variance-predictability framework defines the benchmark choice problem and reshapes the associated pricing relation.

Suggested Citation

  • Lee, Woongki, 2026. "Predictability in Strategic Asset Allocation," SocArXiv s68yd_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:s68yd_v1
    DOI: 10.31235/osf.io/s68yd_v1
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    References listed on IDEAS

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