Improving performance for long-term investors: wide diversification, leverage, and overlay strategies

John M. Mulvey, Cenk Ural and Zhuojuan Zhang

Quantitative Finance, 2007, vol. 7, issue 2, 175-187

Abstract: Long-term investors can markedly improve their investment performance by incorporating specialized 'overlay' securities/strategies in conjunction with widely diversified and leveraged multi-stage portfolios. The overlays require no dedicated capital beyond the core portfolio, providing higher risk-adjusted portfolio returns than approaches based on traditional leverage. A primary example involves the futures market for commodities, currencies and fixed income. These liquid markets display novel patterns of returns relative to traditional equity/bond asset categories. We measure benefits via back tests with several fixed-mix rules, as well as within a stochastic program.

Keywords: Financial optimization; Dynamic portfolio models; Asset allocation; Multi-strategy hedge funds (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (9)

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DOI: 10.1080/14697680701198028

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