Long-Term versus Short-Term Contingencies in Asset Allocation

Mahmoud Botshekan and Andre Lucas

Journal of Financial and Quantitative Analysis, 2017, vol. 52, issue 5, 2277-2303

Abstract: 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.

Date: 2017
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Working Paper: Long-Term versus Short-Term Contingencies in Asset Allocation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:52:y:2017:i:05:p:2277-2303_00

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