Intelligent tactical asset allocation support system

Y. Hiemstra

Research output: Working paper / PreprintWorking paperProfessional

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This paper presents an advanced support system for Tactical Asset Allocation. Asset allocation explains over 90% of portfolio performance (Brinson, Hood and Beebower, 1988). Tactical asset allocation adjusts a strategic portfolio on the basis of short term market outlooks. The system includes aprediction model that forecasts quarterly excess returns on the S and PSOO, an optimization model that adjusts a user-specified strategic portfolio on thebasis of the excess return forecast, and a component to simulate and evaluate tactical asset allocation policies using historic data. Each model isbased on a proven concept and implemented with state-of-the-art technology. The support system is easy to use, and simulations on nearly 20 years ofmarket data demonstrate its added value. The quarterly adjustments recommended by the system generate an investment strategy with higher expected return and lower volatility as a buy-and-hold strategy of the strategic portfolio, while managing active risk.
Original languageEnglish
Place of PublicationAmsterdam
PublisherFaculty of Economics and Business Administration, Vrije Universiteit Amsterdam
Publication statusPublished - 1995

Publication series

NameResearch Memorandum


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