Breadth Momentum and the Canary Universe: Defensive Asset Allocation (DAA)

W. Keller, Jan Willem Keuning
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引用次数: 3

Abstract

We improve on our Vigilant Asset Allocation (VAA) by the introduction of a separate “canary” universe for signaling the need for crash protection, using the concept of breadth momentum. The amount of cash is now governed by the number of canary assets with bad (non-positive) momentum. The risky part is still based on relative momentum (or relative strength), just like VAA. We call this strategy Defensive Assets Allocation (DAA). The aim of DAA is to lower the average cash (or bond) fraction while keeping nearly the same degree of crash protection as with VAA. Using a very simple model from Dec 1926 to Dec 1970 with only the SP500 index as risky asset, we find an optimal canary universe of VWO and BND (aka EEM and AGG), which turns out to be rather effective also for nearly all our VAA universes, from Dec 1970 to Mar 2018. The average cash fraction of DAA is often less than half that of VAA’s, while return and risk are similar and for recent years even better. The usage of a separate “canary” universe for signaling the need for crash protection also improves the tracking error with respect to the passive (buy-and-hold) benchmark and limits turnover.
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广度动量和金丝雀宇宙:防御性资产配置(DAA)
我们通过引入一个单独的“金丝雀”宇宙来改进我们的警惕资产配置(VAA),该宇宙使用广度动量的概念来发出碰撞保护需求的信号。现金的数量现在是由不良(非正)势头的金丝雀资产的数量决定的。风险部分仍然基于相对动量(或相对强度),就像VAA一样。我们称之为防御性资产配置(DAA)策略。DAA的目的是降低平均现金(或债券)比例,同时保持与VAA几乎相同的崩溃保护程度。使用一个非常简单的模型,从1926年12月到1970年12月,仅将标准普尔500指数作为风险资产,我们发现了一个最佳的VWO和BND(又名EEM和AGG)的金丝雀宇宙,事实证明,从1970年12月到2018年3月,这对我们几乎所有的VAA宇宙都相当有效。DAA的平均现金比例通常不到VAA的一半,而回报率和风险相似,近年来甚至更高。使用一个单独的“金丝雀”空间来表示需要进行崩溃保护,也改善了相对于被动(买入并持有)基准的跟踪误差,并限制了周转率。
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