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Carry-Based Expected Returns for Strategic Asset Allocation


Schnetzer, Michael (2019). Carry-Based Expected Returns for Strategic Asset Allocation. Journal of Portfolio Management, 45(2):68-81.

Abstract

In this article, the author investigates expected return forecasting methodologies and their application in an asset allocation context. Although present value model–related methods are popular in practice, little is known about their performance when used for asset allocation. An intuitive and traceable carry-based method is developed by the author and tested and benchmarked against competing alternatives. The results are evaluated from different perspectives, and the obtained returns are regressed on well-known risk factors. The proposed methodology outperformed other return forecasting variants on various metrics and generated significant alphas regardless of the weight determination approach used. The methodology can be extended to further asset classes and geographic regions and provides a framework for allocating assets strategically.

Abstract

In this article, the author investigates expected return forecasting methodologies and their application in an asset allocation context. Although present value model–related methods are popular in practice, little is known about their performance when used for asset allocation. An intuitive and traceable carry-based method is developed by the author and tested and benchmarked against competing alternatives. The results are evaluated from different perspectives, and the obtained returns are regressed on well-known risk factors. The proposed methodology outperformed other return forecasting variants on various metrics and generated significant alphas regardless of the weight determination approach used. The methodology can be extended to further asset classes and geographic regions and provides a framework for allocating assets strategically.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > General Business, Management and Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:2019
Deposited On:10 Feb 2021 07:40
Last Modified:11 Feb 2021 21:00
Publisher:Institutional Investor
ISSN:0095-4918
OA Status:Closed
Publisher DOI:https://doi.org/10.3905/jpm.2018.45.2.068
Official URL:https://jpm.pm-research.com/content/45/2/68/tab-pdf-trialist
Other Identification Number:merlin-id:20674

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