Time-Dependent Black–Litterman

Martin Schans () and Hens Steehouwer
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Martin Schans: Ortec Finance
Hens Steehouwer: Ortec Finance

Journal of Asset Management, 2017, vol. 18, issue 5, No 3, 387 pages

Abstract: Abstract The Black–Litterman method is widely used in the investment management industry to incorporate views in investment portfolios. The method applies when views are expressed as expected returns over the horizon for which allocation decisions are made, i.e., the investment horizon. In practice, however, the investor’s views are typically formulated for the near future while the investor’s investment horizon is much longer. To incorporate such views, we introduce the time-dependent Black–Litterman method and show that, in a time-dependent setting, a distinction should be made between unconditional and conditional views. Furthermore, we demonstrate its use for buy and hold investors. In an example, we show that the investor’s views have a plausible impact on resulting allocation decisions.

Keywords: Black–Litterman; Kalman filter; Asset allocation; Views (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1057/s41260-017-0042-y

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