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A new global tactical asset allocation approach to implement in a global macro hedge fund
Juan Laborda Herrero and Ricardo Laborda Herrero |
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We present a new Global Tactical Asset Allocation (GTAA) approach to implement in
a Global Macro Hedge Fund, taking into account the modern portfolio theory. The methodology
we introduce is based on new advanced analytics, which will give us a clear advantage to exploit
opportunities, in a period where the indexed household wealth growth will be low and the active
management will be needed. First, we propose state variable selection using classification and
regression trees. Second, we detail a novel approach to estimate optimal portfolio weighs without
explicitly modelling the underlying return distribution. Finally, we will apply a procedure to reduce
the risk of high losses, proposing a coherent measure of risk: the expected loss exceeding value
at risk (Conditional VaR).
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