Long-term versus short-term contingencies in asset allocation

M. Botshekan, A. Lucas

Research output: Contribution to JournalArticleAcademicpeer-review


We investigate whether long-term and short-term components of typical conditioning variables in asset pricing studies, such as the dividend yield or yield spread, have different implications for optimal asset allocation. We argue that short-term components relate mostly to momentum, and long-term components relate mostly to mean-reversion effects, respectively. Therefore, they may have a different information content for investors with different horizons. We obtain improvements in terms of out-of-sample Sharpe ratios and expected utilities for decomposed state variables that directly reflect information related to the stock market, such as the dividend yield and stock market trend.

Original languageEnglish
Pages (from-to)2277-2303
Number of pages27
JournalJournal of Financial and Quantitative Analysis
Issue number5
Publication statusPublished - 2017

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