Journal of Financial and Quantitative Analysis Vol. 52 No. 5 2017
Long-Term versus Short-Term Contingencies in Asset Allocation
Abstract
We investigate whether long-term and short-term components of typical conditioning variables in asset pricing studies, such as the dividend yield or yield spread, have different implications for optimal asset allocation. We argue that short-term components relate mostly to momentum, and long-term components relate mostly to mean-reversion effects, respectively. Therefore, they may have a different information content for investors with different horizons. We obtain improvements in terms of out-of-sample Sharpe ratios and expected utilities for decomposed state variables that directly reflect information related to the stock market, such as the dividend yield and stock market trend.
- DOI
- 10.1017/s002210901700059x
- Volume
- 52
- Issue
- 5
- Pages
- 2277-2303
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref