By Greg N. Gregoriou

This publication is set strategic asset allocation for institutional traders. it truly is an edited sequence of papers, from revered teachers around the globe, at the newest advancements in portfolio administration, together with new clinical articles that aid to spot new traits. those specialist reports can successfully increase the danger and go back features of your funding portfolio.

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1 Economic importance of regimes The economic importance of regimes is a very relevant issue for the appraisal of regime-switching strategies. We measure this “importance” as utility costs that an investor bears, when he/she gives up the optimal strategy and follows instead a suboptimal one. More precisely, we are interested in the monetary compensation c, also called certainty equivalent compensation, that makes an investor with time horizon T indifferent between the suboptimal weights α− and the optimal weights α∗ .

We also observe that the optimal hedging strategy recovers fast from the Russian crises in autumn 1998, suffers during the bursting of the Internet bubble, but recovers very well with strong performance during 2004/5. In comparison, the unhedged regime-switching strategy outperforms the benchmark by only 18 percent. Towards the end of the bursting of the MARKUS LEIPPOLD AND FELIX MORGER 33 Internet bubble, the investor allocates most of the capital into the risk-free asset, but misses the beginning of the recovery period.

17 FH, 2 reg. 06 OH, 3 reg. 45 Panel C: States of OH versus the OH bear state Low corr. 15 High corr. 43 Uncond. 41 29 Notes: Panels A and B report the economic cost of investing suboptimally. The suboptimal strategies have the same investment opportunities as the optimal strategies. The economic cost of these three panels are calculated with the indirect utilities, Q∗0,T of the unconditional state probabilities. Panel C documents the importance of regimes for the case of the optimal hedging strategy.

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