RT Journal Article
SR Electronic
T1 Asset Allocation in Stable and Unstable Times
JF The Journal of Investing
FD Institutional Investor Journals
SP 72
OP 80
DO 10.3905/joi.2004.434554
VO 13
IS 3
A1 Rob Bauer
A1 Roul Haerden
A1 Roderick Molenaar
YR 2004
UL https://pm-research.com/content/13/3/72.abstract
AB Turbulence, uncertainty, and unstable parameters in financial markets can have severe effects on the risk and return characteristics of investment portfolios. A procedure for identification of multivariate outliers may be used to construct risk parameters and optimal portfolios for both quiet (good) and turbulent (bad) times. Is such a procedure profitable from a practitioner's point of view? According to a backtesting strategy under the assumption of perfect foresight with regard to the prevailing regime, a regime-switching strategy improves on a standard full-sample optimization strategy, but the transaction costs associated with high turnover detract considerably from performance.