On the Informational Content of Changing Risk for Dynamic Asset Allocation

Giovanni Barone-Adesi, Patrick Gagliardini () and Fabio Trojani
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Giovanni Barone-Adesi: Università della Svizzera Italiana, Lugano
Fabio Trojani: Università della Svizzera Italiana, Lugano

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: The informational content of changing risk for dynmaic asset allocation is analyzed in order to investigate its importance in determining expected index returns. We consider a class of optimal dynamic strategies taking into account both changing risk and expected returns that vary accordingly to changing risk. We compare their risk adjusted performance to that of a buy and hold strategy under different hypotheses on the form of conditionally expected returns. The statistical evidence in favour of expected returns varying accordingly to changing risk is elusive. On the other hand, we find some evidence of a superior unconditional risk adjusted performance of volatility based trading rules compared to buy and hold strategies. This suggests that changing risk conveys information useful to improve performance.

JEL-codes: G0 G1 (search for similar items in EconPapers)
Date: 2000-03
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