Protected Adaptive Asset Allocation

BELLU, MIRKO

First

Software

;Conversano Claudio

Second

Methodology

2020-01-01

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Abstract

Protected Adaptive Asset Allocation (PAAA) is a tactical asset allocation model that targets an optimal risk/returns ratio using both a momentum index to capture the short-run dynamics and cash protection in negative market periods to reduce drawdowns. Empirical evidence shows that PAAA improves upon the performance of alternative models in terms of the risk/return profile when applied to a well-diversified dataset in the long term, based on the results of in/out-of-sample analyses, and when the analysis is restricted to a financial crisis period. For less diversified portfolios, PAAA is equivalent to an Adaptive Asset Allocation that includes a liquidity component.