Chapter 16. Asset Allocation and Portfolio Construction
NOËL AMENC, PhD
Professor of Finance, Edhec Graduate School of Business
Director, Edhec Risk and Asset Management Research Centre
FELIX GOLTZ
Senior Research Engineer, Edhec Risk and Asset Management Research Centre
LIONEL MARTELLINI, PhD
Professor of Finance, Edhec Graduate School of Business
Scientific Director, Edhec Risk and Asset Management Research Centre
VÉRONIQUE LE SOURD
Senior Research Engineer, Edhec Risk and Asset Management Research Centre
Abstract: Asset allocation is an essential part of portfolio construction, which allows investors to define the portfolio risk level, and as such determines the portfolio future performance. Asset allocation is to be declined in strategic asset allocation and tactical asset allocation. Strategic asset allocation allows investors to choose their portfolio's long term profile, including regional allocation, sector or asset class choice. This long-term allocation is then periodically readjusted through tactical allocation, in order to take into account short-term opportunities, with the purpose of achieving the best performance for the portfolio, considering the level of risk defined.
Keywords: strategic asset allocation, tactical asset allocation, tactical style allocation, Markowitz model, Black-Litterman model
Portfolio management consists of constructing portfolios and making them evolve in order to reach the return objectives defined by the investor, while respecting the investor's constraints ...
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