Asset allocation strategies are a frequently discussed topic with increasing importance in times of crisis. Such strategies should prevent us from price deterioration in bad times and ensure high return potentials in good times. More and more tactical asset allocation funds emerge and promise better returns than simple strategy funds. They always try to be on the right market side, in up as well as in down phases. This seminar paper deals with some basic question about what strategic and tactical asset allocation is, when should it be used and if these strategies are appropriate in a highly uncertain environment like the current. It should give the reader a broad overview about the topic by referring to different accepted theories and studies. First the development of asset allocation methods will be described resulting in strategic and tactical asset allocation and an evaluation of them. Furthermore a link toward uncertain market conditions will be compounded.
Table of Contents
- 1. Introduction
- 2. Development of Asset Allocation Methods
- 3. Description of Strategic Asset Allocation
- 4. Description of Tactical Asset Allocation
- 4.1. Elemental Shifting Rules
- 4.2. Portfolio Insurance
- 4.3. Best of n risky assets
- 4.4. Protect Spending
- 4.5. Distinction between Strategic and Tactical Asset Allocation
- 5. Strategic versus Tactical Asset Allocation
- 5.1. Evaluation of Strategic Asset Allocation
- 5.2. Evaluation of Tactical Asset Allocation
- 5.3. Which Asset Allocation Decisions does affect returns most?
- 6. Asset Allocation under High Uncertainty
- 6.1. The Difficulty of Forecasting
- 6.2. The Importance of Risk and Correlation
- 6.3. Taking Inflation into Account
Objectives and Key Themes
This seminar paper aims to provide a broad overview of strategic and tactical asset allocation, exploring their applications and suitability within highly uncertain market environments. It examines the historical development of asset allocation methods, evaluates the strengths and weaknesses of both strategic and tactical approaches, and considers the impact of market uncertainty on asset allocation decisions.
- The development and comparison of strategic and tactical asset allocation methods.
- Evaluation of the effectiveness of different asset allocation strategies.
- The influence of market uncertainty on asset allocation decisions.
- The role of risk and correlation in asset allocation.
- The importance of considering inflation in asset allocation strategies.
Chapter Summaries
1. Introduction: This introductory chapter sets the stage by highlighting the increasing importance of asset allocation strategies, particularly during times of economic crisis. It emphasizes the need for strategies that mitigate losses during downturns while maximizing returns during periods of growth. The chapter introduces the core questions addressed in the paper: what constitutes strategic and tactical asset allocation, when are these strategies most effective, and how applicable are they in uncertain market conditions. The paper promises a comprehensive overview by referencing established theories and studies, outlining the structure of the subsequent chapters that will cover the development of asset allocation methods, evaluations of strategic and tactical approaches, and the connection to uncertain market conditions.
2. Development of Asset Allocation Methods: This chapter traces the historical development of asset allocation methodologies, beginning with Markowitz's mean-variance model (1952). This model introduced the concept of optimizing portfolio allocation across different asset classes (cash, bonds, and stocks) considering both risk and return. The chapter introduces the efficient frontier, illustrating the optimal mix of assets based on risk tolerance. The chapter expands on the concept of risk by incorporating Sharpe's (1964) capital asset pricing model and its use of beta to measure asset movements relative to the market. This section also acknowledges limitations of the classical portfolio theory and the "asset allocation puzzle" – the discrepancy between theoretical predictions and real-world practices. The chapter concludes by emphasizing the continued relevance and practical guidance offered by these foundational models despite their limitations.
3. Description of Strategic Asset Allocation: [Note: Content for this chapter was not provided in the source text. A summary cannot be created.]
4. Description of Tactical Asset Allocation: [Note: Content for this chapter was not provided in the source text. A summary cannot be created.]
5. Strategic versus Tactical Asset Allocation: [Note: Content for this chapter was not provided in the source text. A summary cannot be created.]
6. Asset Allocation under High Uncertainty: [Note: Content for this chapter was not provided in the source text. A summary cannot be created.]
Keywords
Asset allocation, strategic asset allocation, tactical asset allocation, risk, return, portfolio optimization, market uncertainty, mean-variance model, capital asset pricing model, inflation, risk aversion, efficient frontier.
Frequently Asked Questions: A Comprehensive Language Preview of Strategic and Tactical Asset Allocation
What is the focus of this document?
This document provides a comprehensive preview of a seminar paper focusing on strategic and tactical asset allocation. It includes a table of contents, objectives and key themes, chapter summaries, and keywords. The paper aims to explore these asset allocation strategies, particularly within uncertain market conditions.
What topics are covered in the table of contents?
The table of contents covers the introduction, the development of asset allocation methods, descriptions of strategic and tactical asset allocation (including subtopics on elemental shifting rules, portfolio insurance, and more), a comparison of strategic versus tactical asset allocation, and finally, asset allocation under high uncertainty (including forecasting difficulties, the importance of risk and correlation, and inflation).
What are the main objectives and key themes?
The main objectives are to provide a broad overview of strategic and tactical asset allocation, examining their applications and suitability in uncertain markets. Key themes include the development and comparison of these methods, evaluating their effectiveness, understanding the influence of market uncertainty, the role of risk and correlation, and the importance of considering inflation.
What is included in the chapter summaries?
The provided chapter summaries detail the introduction, which emphasizes the importance of asset allocation strategies, especially during economic crises. It also outlines the development of asset allocation methods, tracing the history from Markowitz's mean-variance model and Sharpe's capital asset pricing model. Summaries for chapters 3, 4, 5, and 6 were not available in the source text.
What are the key terms used throughout the document?
Key terms include asset allocation, strategic asset allocation, tactical asset allocation, risk, return, portfolio optimization, market uncertainty, mean-variance model, capital asset pricing model, inflation, risk aversion, and efficient frontier.
What specific asset allocation methods are discussed?
While full details aren't provided in the preview, the document mentions the mean-variance model (Markowitz, 1952) and the capital asset pricing model (Sharpe, 1964) as foundational models. Additionally, tactical asset allocation methods like elemental shifting rules and portfolio insurance are listed in the table of contents but not detailed in the preview's summaries.
How does the document address market uncertainty?
The document highlights the impact of market uncertainty on asset allocation decisions as a key theme. It notes the difficulty of forecasting and the importance of considering risk, correlation, and inflation within uncertain market conditions.
What is the overall takeaway from this document preview?
This preview offers a structured overview of a paper that comprehensively explores strategic and tactical asset allocation. It emphasizes the historical development of these methods, their comparative strengths and weaknesses, and their applicability in navigating uncertain market environments. The lack of complete chapter summaries highlights the need for access to the full paper for a thorough understanding.
- Quote paper
- BSc Daniel Hosp (Author), 2012, Strategic versus tactical asset allocation in markets with high uncertainty, Munich, GRIN Verlag, https://www.grin.com/document/209080
