Structural positions are very common in investment practice. A structural position is defined as a permanent overweighting of a riskier asset class relative to a prespecified benchmark portfolio. The most prominent example for a structural position is the equity bias in a balanced fund that...

Estimation risk is known to have a huge impact on mean/variance (MV) optimized portfolios, which is one of the primary reasons to make standard Markowitz optimization unfeasible in practice. Several approaches to incorporate estimation risk into portfolio selection are suggested in the earlier...

US investors hold much less foreign stocks than mean/variance analysis applied to historical data predicts. In this article, we investigate whether this home bias can be explained by Bayesian approaches to international asset allocation. In contrast to mean/variance analysis, Bayesian approaches...

Traditional balanced funds with a more or less constant stock allocation cannot solve the conflict of various investment horizons that most institutional investors face. In order to generate capital gains, large allocations in risky asset classes such as equities are needed. However, this is not...

In investment practice, expected returns are assumed to be time-varying. Instrumental variables like dividend yields or term spreads are employed to predict expected returns. However, there is a substantial amount of estimation risk (or, parameter uncertainty) attached to these predictive...

U.S. investors hold much less international stock than is optimal according to mean-variance portfolio theory applied to historical data. We investigated whether this home bias can be explained by Bayesian approaches to international asset allocation. In comparison with mean-variance analysis,...