The Power of Dynamic Asset Allocation

Mirko Cardinale, Marco Navone and Andrzej Pioch
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Mirko Cardinale: Russell Investments
Andrzej Pioch: Aviva Investors

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This article re-assesses the evidence and practical relevance of asset returns’ long-horizon predictability, investigating whether practitioners can profitably exploit predictability patterns by using relatively simple, dynamic asset allocation strategies. The analysis shows forward-looking models that rely on steady-state equations for equities and initial yields to maturity for bonds are far better predictors of markets’ long-run direction than is the industry’s conventional approach, which involves extrapolating from historical averages. Using a long-term U.S. sample from 1926 to 2010, the authors find that predictability translates into significantly better risk-adjusted performance from dynamic asset allocation strategies that rely on forward-looking inputs.

Pages: 14 pages
Date: 2014-01-01
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Published in: Cardinale, M., Navone, M. and Pioch, A., 2014, "The power of dynamic asset allocation", Journal of Portfolio Management, 40(3), 47-60

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