Macro-Based Parametric Asset Allocation

Vol. 16, No.3, 2018
Richard Franz

Without doubt the financial returns of asset classes are interlinked with the economy. However, a direct link between financial returns and return-driving forces has not been discovered yet. Moreover, there exist many robust approaches for within-asset-class allocation but few advances have been made for between-asset-class allocation. To address these topics I propose a direct modeling of the weights with macroeconomic risk factors. This allows to implicitly identify capital-market dynamics and thus provides a framework which can help in the tactical asset allocation decision.