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.
All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)
- Asset allocation
- Dynamic portfolio models
- Financial optimization
- Multi-strategy hedge funds