Does Black-Litterman Model adds value to a MILA portfolio?

Susana Arango Luna-Ramírez () and Diego A. Agudelo ()

No 16940, Documentos de Trabajo de Valor Público from Universidad EAFIT

Abstract: The Black-Litterman model (BL) has been offered as an alternative to the classical Markowitz Mean-Variance framework, to structure well-diversified portfolios that incorporate visions from fundamental analysts. We apply this model to stock portfolios in the countries of the Mercado Integrado Latinoamericano (MILA): Colombia, Chile, Mexico and Peru, starting from the constituents of the main stock market indexes. As perspectives, we use the historical analyst ́s recommendations in Bloomberg for the period 2008-2016. We find that portfolios created with BL outperform the main index, both in average return and in alpha, in each of the four countries. Moreover, a regional BL portfolio that combines the four BL country portfolios, outperforms a regional Benchmark, measured in dollars, in each one of three alternatives of Us dollar hedge.

Keywords: Portfolio active management; Black-Litterman Model; MILA; diversification; Fund performance evaluation; portfolio fixed-income hedge (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Pages: 26
Date: 2017-10-10
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Persistent link: https://EconPapers.repec.org/RePEc:col:000122:016940

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