The dynamic Black–Litterman approach to asset allocation

Richard Harris, Evarist Stoja and Linzhi Tan

European Journal of Operational Research, 2017, vol. 259, issue 3, 1085-1096

Abstract: We generalize the Black–Litterman (BL) portfolio management framework to incorporate time-variation in the conditional distribution of returns in the asset allocation process. We evaluate the performance of the dynamic BL model using both standard performance ratios as well as other measures that are designed to capture tail risk in the presence of non-normally distributed asset returns. We find that the dynamic BL model outperforms a range of different benchmarks. Moreover, we show that the choice of volatility model has a considerable impact on the performance of the dynamic BL model.

Keywords: Finance; Black–Litterman model; Multivariate conditional volatility; Portfolio optimization; Tail risk (search for similar items in EconPapers)
JEL-codes: C22 C53 G11 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: The dynamic Black-Litterman approach to asset allocation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:259:y:2017:i:3:p:1085-1096

DOI: 10.1016/j.ejor.2016.11.045

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