13. Tactical Asset Allocation

  1. Bernhard Pfaff

Published Online: 30 OCT 2012

DOI: 10.1002/9781118477144.ch13

Financial Risk Modelling and Portfolio Optimization with R

Financial Risk Modelling and Portfolio Optimization with R

How to Cite

Pfaff, B. (2012) Tactical Asset Allocation, in Financial Risk Modelling and Portfolio Optimization with R, John Wiley & Sons, Ltd, Chichester, UK. doi: 10.1002/9781118477144.ch13

Author Information

  1. Invesco Global Strategies, Germany

Publication History

  1. Published Online: 30 OCT 2012
  2. Published Print: 28 DEC 2012

ISBN Information

Print ISBN: 9780470978702

Online ISBN: 9781118477144



  • Black—Litterman (BL) model;
  • Box—Jenkins approach;
  • Copula opinion pooling (COP);
  • entropy pooling (EP);
  • multivariate time series models;
  • structural vector autoregressive (SVAR) model;
  • tactical asset allocation (TAA);
  • univariate time series models;
  • vector error correction model


This chapter outlines how directional and relative forecasts can be obtained and how portfolio allocations can be derived from a set of quantitatively derived trades/signals. Techniques portrayed are not confined to tactical asset allocation (TAA), but can also be applied to wealth allocations other than tactically shifting assets in and out of a portfolio. The focus is to describe the selected time series methods for deriving forecasts of asset prices. Presenting a survey these models, the chapter discusses univariate and multivariate time series models. It touches on the Box—Jenkins approach to time series modelling as well as vector autoregressive (VAR) and vector error correction models and structural vector autoregressive (SVAR) models. The sensitivity of the weight solution to the assumed return vector with an illustration of the Black—Litterman (BL) model. Copula opinion pooling (COP) and entropy pooling (EP) can both be viewed as extensions to the original BL model.

Controlled Vocabulary Terms

autoregressive model; Box-Cox Transformation; Copula; maximum entropy method; multivariate models; SVAR model; univariate modeling; vector error-correction model (VECM)