The dynamic Black-Litterman approach to asset allocation

Harris, R.D.F., Stoja, E. and Tan, L. ORCID: 0000-0001-6986-1923, 2016. The dynamic Black-Litterman approach to asset allocation. Working Paper. London: Bank of England.

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Abstract

We generalise the Black-Litterman (BL) portfolio management framework to incorporate time-variation in the conditional distribution of returns in the asset allocation process. We evaluate the performance of the dynamic BL model using both standard performance ratios as well as other measures that are designed to capture tail risk in the presence of non-normally distributed asset returns. We find that dynamic BL model outperforms a range of different benchmarks. Moreover, we show that the choice of volatility model has a considerable impact on the performance of the dynamic BL model.

Item Type: Working paper
Description: Bank of England Staff Working Paper no. 596.
Creators: Harris, R.D.F., Stoja, E. and Tan, L.
Publisher: Bank of England
Place of Publication: London
Date: April 2016
Divisions: Schools > Nottingham Business School
Depositing User: Linda Sullivan
Date Added: 09 Nov 2016 14:12
Last Modified: 09 Jun 2017 14:08
URI: http://irep.ntu.ac.uk/id/eprint/29057

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