Theoretical And Empirical Research On Long-term And Short-term Asset Allocation Problems

With the development of the economy,the role of financial market in the economy is becoming more and more important.The mean-variance model proposed by financial economists such as Markowitz in the 1970 s laid the theoretical foundation for investors to allocate assets.After more than 40 years of development,in the mature financial markets of developed countries,with the continuous improvement of financial markets,most participants have changed from “speculators” who rely on technical analysis for market timing to investors who allocate assets effectively based on investment objectives and risk appetite.With China's economy entering the “new normal” and for the long-term stable development of the economy,it is urgent to improve the effectiveness of the allocation of financial market resources,break the rigid payment,and encourage long-term value investors to invest though financial market.Therefore,the spread of risk among different assets,that is,asset allocation will become an important investment mode for investors in China's financial market.The core issue in asset allocation is the estimation of asset risk/return and the quantification of investors' risk appetite.Compared with the stock investment strategy,the investment horizon of asset allocation is relatively long,thus it is very important to establish a unified theoretical framework that can estimate the dynamic relationship between long-term and short-tern risk in asset allocation.The core of this dissertation is the estimation of risk and the quantification of investors' risk appetite in short-term and long-term asset allocation in China's financial market,from the perspectives of theoretical derivation and empirical analysis.The main research content and conclusions of this dissertation are as follows:1.The performance attribution of asset allocation.Through the performance attribution analysis of the domestic capital market,and based on the hybrid fund and active stock fund,it is found that asset allocation can explain a great proportion of the investment performance,thus demonstrating the importance of asset allocation for the further development of China's economy and financial market.2.The dynamic relationship between long-term and short-term covariance matrix.The asset returns are usually more self-correlated than individual stock returns,especially bonds and currency.So the estimation and prediction of asset risk must take into account the dynamic changes of the covariance matrix in different investment horizon.The Chapter four of this dissertation demonstrates that when estimating asset risk,it will produce errors if the dynamic change of the covariance matrix is ignored,and then,based on strict theoretical derivations,this dissertation puts forward the asset risk estimation model and practical methods to consider the dynamic variation of asset covariance matrix in different investment horizon.3.The quantification of risk appetite and the dynamic relationship between longterm and short-term risk aversion coefficient.The common method to obtain the risk aversion coefficient is to calculate from the actual allocation of investors.But there is lagging and the risk aversion coefficient of different horizon is relatively independent using such method.As the investment horizon for asset allocation is relatively long,the risk aversion coefficient may not be static.This dissertation obtains the precise expression of risk aversion coefficient through mathematical derivation,and the accurate risk aversion factor at different investment horizon can be calculated according to the investors' tolerance of long-term and short-term risks.4.The Black-Litterman(B-L)asset allocation model is improved to a certain extent,and based on this,the short-term and long-term asset allocation strategies are constructed,and the two strategies are analyzed in a united framework.Nowadays,one of the most commonly used asset allocation models is B-L model.This dissertation puts forward improvement suggestions for the existing B-L model,and demonstrates the superiority of the model through empirical analysis.Based on the previous conclusions of relationship between long-term and short-term risk estimation and investors' risk appetite,this paper constructs the short-term and long-term asset allocation strategy based on B-L model and analyzes the two strategies in a united framework.Based on the empirical analysis of domestic data,it is found that the short-term tactical asset allocation can achieve significant excess performance under certain conditions.The main innovations are as follows:1.Using the actual data of China's financial market,this dissertation demonstrates the dynamic characteristics of the covariance matrix as investment horizon changes,and the necessity of establishing a consistent theoretical framework for estimating the long-term and short-term risks of assets based on this dynamic relationship,besides,the practical methods of the theoretical framework in risk estimation is revealed.Since the investment horizon of asset allocation is usually long,the long-term covariance matrix,calculated directly from the long-term data(1-5years)lacks sufficient historical samples and ignores the intrinsic correlation between short-term and long-term risks.Because of the self-correlation of asset returns,this dissertation finds that there is error in the method of simply converting the short-term covariance matrix to the long-term covariance matrix.The theoretical model in this dissertation solves this problem,and the validity of the theoretical model is tested through empirical analysis.2.As the common estimation method cannot reflect the intrinsic correlation between long-term and short-term risk aversion,the relationship between the maximum risk that investors can bear and the investors' risk aversion coefficient is established through theoretical derivation,and thus this dissertation obtains the dynamic relationship between the short-term and long-term risk aversion coefficient.This allows for a more reasonable and effective estimate of investors' risk appetite at different time horizon.3.Analysis of long-term and short-term asset allocation in a united framework is put forward for the first time.At present,the research of long-term strategic asset allocation and short-term tactical asset allocation is usually separated.Based on the dynamic relationship between long-term and short-term risks and the inherent correlation of investors' long-term and short-term risk appetite,this dissertation integrates the estimation of long-term and short-term asset risk and the estimation of investors' long-term and short-term risk appetite into the theoretical framework of longterm strategic and short-term tactical asset allocation.Based on this,the long-term and short-term asset allocation decisions are analyzed in a united framework.