2. The Role of Alternative Investments in Strategic Asset Allocation

  1. H. Kent Baker and
  2. Greg Filbeck
  1. Douglas Cumming1,
  2. Lars Helge Haß2 and
  3. Denis Schweizer3

Published Online: 2 APR 2013

DOI: 10.1002/9781118656501.ch2

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

How to Cite

Cumming, D., Haß, L. H. and Schweizer, D. (2013) The Role of Alternative Investments in Strategic Asset Allocation, in Alternative Investments: Instruments, Performance, Benchmarks, and Strategies (eds H. K. Baker and G. Filbeck), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118656501.ch2

Author Information

  1. 1

    Professor and Ontario Research Chair, York University

  2. 2

    Assistant Professor of Accounting and Finance, Lancaster University

  3. 3

    Assistant Professor of Alternative Investments, WHU–Otto Beisheim School of Management

Publication History

  1. Published Online: 2 APR 2013
  2. Published Print: 18 MAR 2013

ISBN Information

Print ISBN: 9781118241127

Online ISBN: 9781118656501

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Keywords:

  • alternative investments;
  • higher moments;
  • strategic asset allocation.

Summary

This chapter introduces a framework for strategic asset allocation using alternative investments along with traditional investments. The approach accounts for time series biases with alternative asset indices. A strategic asset allocation model is used that is flexible enough to capture the risk-return profile adequately, as well as incorporate real investor preferences. The results show that bonds are highly important in all portfolios, but defensive portfolios tend to use stocks of large U.S. firms. In all portfolios, emerging markets gain in relevance with decreasing risk aversion. For alternative investments, all portfolios use the maximum allocation of hedge funds and a medium allocation of commodities. Private equity is comparatively more important in defensive portfolios, whereas real estate investment trusts (REITs) gain in importance as risk aversion decreases.