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Asset allocation with forward-looking distribution

Takuya Kiriu & Norio Hibiki

International Journal of Portfolio Analysis and Management2024https://doi.org/10.1504/ijpam.2024.137760article
ABDC B
Weight
0.30

Abstract

In asset allocation, selecting an approach to estimate return distribution has a significant impact on investment performance. Previous studies show the effectiveness of the forward-looking approach for timing the stock market. In practice, it is common to consider asset allocations that include bonds and stocks. However, a forward-looking approach for bonds has not been developed or investigated. In this study, we develop a forward-looking method to estimate bond return distribution from current market prices. Then, we construct a forward-looking asset allocation model for a Japanese investor under a practical setting that includes both bonds and stocks. From the out-of-sample performance comparison with non-forward-looking approaches, we obtain the following results. First, the forward-looking approach performs better than the non-forward-looking approaches. Second, the timing ability contributes to the better performance of the forward-looking approach. Third, the forward-looking approach is beneficial for bonds and stocks.

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https://doi.org/https://doi.org/10.1504/ijpam.2024.137760

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@article{takuya2024,
  title        = {{Asset allocation with forward-looking distribution}},
  author       = {Takuya Kiriu & Norio Hibiki},
  journal      = {International Journal of Portfolio Analysis and Management},
  year         = {2024},
  doi          = {https://doi.org/https://doi.org/10.1504/ijpam.2024.137760},
}

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Asset allocation with forward-looking distribution

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Evidence weight

0.30

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.00 × 0.4 = 0.00
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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