Strategic Asset Allocation for Central Bank’s Management of Foreign Reserves: A new approach

Zhichao Zhang (), Frankie Chau and Li Xie

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a new approach to strategic asset allocation for central banks’ management of foreign reserves. This eclectic approach combines the behavioural portfolio management in the framework of mean-variance mental accounting (MVMA) with the improvements on asset return forecast offered by the Black-Litterman (B-L) model, proving particularly suitable for the reserve management policy with multiple objectives. The B-L model is embedded into the MVMA framework to obtain both the equilibrium and the B-L returns as our improved forecasts, formulating forward-looking investment strategies. The approach is applied to the case of China to derive optimal asset allocation for the Chinese central bank.

Keywords: Reserve Management; Strategic Asset Allocation; Mental Accounting; Black-Litterman model; China’s Foreign Reserves (search for similar items in EconPapers)
JEL-codes: C11 C61 E58 G0 G11 (search for similar items in EconPapers)
Date: 2012-12-21
New Economics Papers: this item is included in nep-for, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/43654/1/MPRA_paper_43654.pdf original version (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:pra:mprapa:43654

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().