Top-Down Portfolio Allocation

Gueorgui S. Konstantinov, Frank J. Fabozzi and Joseph S. Simonian

Chapter 6 in Quantitative Global Bond Portfolio Management, 2023, pp 175-203 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Top-down portfolio allocation pertains to the allocation of capital across different countries, sectors, factors, currencies, and other assets. This stands in contrast to bottom-up security selection (discussed in Chapter 7), which is concerned with the allocation of capital to individual securities within an asset class. We frame this chapter using well-known theoretical frameworks from the financial literature. Specifically, we identify several practical and theoretically sound techniques that can assist in portfolio allocation. The main task of portfolio allocation is determining the allocation to asset classes — countries, currencies, or industry sectors. In contrast to portfolio allocation, portfolio selection is the selection of the actual bonds to include in the portfolio once the weight of the asset class in the portfolio is determined via the portfolio allocation process. Following a bottom-up investment approach, portfolio selection has the highest priority, and asset allocation is determined once the individual securities are evaluated…

Keywords: Fixed-Income; Currency Management; Portfolio Management; Risk Management; Factors; Portfolio Optimization; Hedging; Portfolio Evaluation; Performance Attribution (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2023
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