Asset Allocation Considering With Investor's Subject Expectation

Asset allocation is the most important part of modern investment theory. Through the stable and reasonable asset allocation, investors can not only earn more profit, but also effectively avoid investment risk. As funds' basic operation principle, asset allocation strategy can interpret 91.5% of their return. So, for institutional investors, especially for fund managers, asset allocation plays a very important role in increasing the investment performance as well as diversification of risk. In recent years, along with the rapid development of the fund market, the research of asset allocation model is paid more and more attention.Nowadays, an asset allocation model of Black-Litterman formally proposed by Fischer Black and Robert Litterman (1991) of Goldman Sachs is widely used in the world. However most of financial time serials have the property of excess peakness, fat tails and skewness, they often reject normal distribution hypothesis. Also, there exist time varied correlation, volatility clustering and heteroscedasticity. The original Black-Litterman model cannot solve above problems properly. This paper attempts to use the original Black-Litterman model to estimate and optimize, and meanwhile we introduce the Copula methods and DCC-MVGARCH. The Copula can erase the discrepancy of investor's view distribution and the implied market prior distribution, while the DCC model can help with the volatility clustering, heteroscedasticity and time varied correlation jointly.This paper adopts GICS industry index in China to conduct the Empirical Analysis. The conclusion shows that whether under the constraint of short sale or not, our method does achieve superior returns to Markowitz method and benchmark of GICS and SSE Composite Index. The volatility of our portfolio is smaller than other methods mentioned above. Under the constraint of short sale, our method "BLCOP-DCC" portfolio has the less loss than Markowitz in 2008. Overall, the blended method—BLCOP-DCC can be a more desirable strategy .