Exploiting Predictability in International Anomalies

Devraj Basu (), Chi-Hsiou Hung () and Alexander Stremme ()
Additional contact information
Devraj Basu: Cass Business School
Alexander Stremme: Warwick Business School

No 2007_03, Department of Economics Working Papers from Durham University, Department of Economics

Abstract: We construct unconditionally efficient asset allocation strategies that ex- ploit return predictability of international size and momentum portfolios. The strategies achieve comparable returns to these investment assets while exhibit- ing much lower volatility. They largely avoid major losses by successfully tim- ing these assets. The strategies utilizing the MSCI world index and the term spread as predictive variables achieve better performance than those without exploiting return predictability. The optimal strategies perform better than conditionally efficient strategies due the conservative response of the optimal portfolio weight to extreme realizations of the predictive variables, thus leading to lower volatility.

JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2007-03-20
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dro.dur.ac.uk/4368 main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dur:durham:2007_03

Access Statistics for this paper

More papers in Department of Economics Working Papers from Durham University, Department of Economics Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England. Contact information at EDIRC.
Bibliographic data for series maintained by Tatiana Damjanovic ().