We are very grateful to an anonymous referee for many helpful comments and to the editor John Doukas for very useful suggestions. Moreover, the paper has benefitted from comments by Greg N. Gregoriou, Dieter G. Kaiser, Harry M. Kat, Lutz Johanning, Christian Koziol, Rainer Lauterbach, Michael McDonald, Mark Mietzner, Juliane Proelss, and Maximilian Trossbach as well as the participants of the EFM Alternative Investments Conference 2011 (Toronto), International Business Research Conference (8th Annual Meeting, Dubai), European Financial Management Association (17th Annual Meeting, Athena), Campus for Finance 2009 (Vallendar), and Midwest Finance Association (58th Annual Meeting, Chicago) for helpful comments and suggestions. All remaining errors are our own.
Strategic Asset Allocation and the Role of Alternative Investments
Article first published online: 19 MAR 2012
© 2012 John Wiley & Sons Ltd
European Financial Management
Volume 20, Issue 3, pages 521–547, June 2014
How to Cite
Cumming, D., Helge Haß, L. and Schweizer, D. (2014), Strategic Asset Allocation and the Role of Alternative Investments. European Financial Management, 20: 521–547. doi: 10.1111/j.1468-036X.2012.00642.x
- Issue published online: 17 JUN 2014
- Article first published online: 19 MAR 2012
- alternative investments;
- higher moments;
- strategic asset allocation
We introduce a framework for strategic asset allocation with alternative investments. Our framework uses a quantifiable risk preference parameter, λ, instead of a utility function. We account for higher moments of the return distributions and approximate best-fit distributions. Thus, we replace the empirical return distributions with two normal distributions. We then use these in the strategic asset allocation. Our framework yields better results than Markowitz's framework. Furthermore, our framework better manages regime switches that occur during crises. To test the robustness of our results, we use a battery of robustness checks and find stable results.