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Long-term Portfolio Allocation Based on Long-term Macro Forecasts [extrait BMI 134]

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We first discuss arguments that rebut quantitative portfolio allocation for the long term based on non predictability of asset markets. Next, we find that over long time horizon such as 10 years, macro-economic forecasts of various economic variables outperform in terms of meansquarederrors those obtained with purely statistical techniques. We discuss the components needed to model liability returns and empirically demonstrate that a) portfolio allocations taking into account pension fund hedging demand substantially differ from traditional asset allocationsthat b) in terms of certainty equivalent, there is a large cost if one neglects liabilities. The utility cost of using suboptimal strategies amounts to several percent returns essentially due to deterioration of volatility. The cost of imposing positive weights on asset-liability management allocations is also economically significant.JEL Codes: C51; C53; C61; G11; J32.Keywords: Stock Returns; Predictability; Pension Fund; Portfolio Choice.

Auteurs :Jondeau Éric
Extrait de la revue BMI 134

BMI134-1120818
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