Improving performance for long-term investors: Wide diversification, leverage, and overlay strategies

John M. Mulvey, Cenk Ural, Zhuojuan Zhang

Research output: Contribution to journalArticle

16 Scopus citations

Abstract

Long-term investors can markedly improve their investment performance by incorporating specialized 'overlay' securities/strategies in conjunction with widely diversified and leveraged multi-stage portfolios. The overlays require no dedicated capital beyond the core portfolio, providing higher risk-adjusted portfolio returns than approaches based on traditional leverage. A primary example involves the futures market for commodities, currencies and fixed income. These liquid markets display novel patterns of returns relative to traditional equity/bond asset categories. We measure benefits via back tests with several fixed-mix rules, as well as within a stochastic program.

Original languageEnglish (US)
Pages (from-to)175-187
Number of pages13
JournalQuantitative Finance
Volume7
Issue number2
DOIs
StatePublished - Apr 1 2007

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Keywords

  • Asset allocation
  • Dynamic portfolio models
  • Financial optimization
  • Multi-strategy hedge funds

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