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Asset allocation superior to stock selection
23 April 2013
Cambridge University’s Professor Raghavendra Rau compares the two strategies
Professor Raghavendra Rau
Deutsche Asset and Wealth Management Global Financial Institute
Asset allocation strategies are more important than stock selection strategies, according to a new white paper by a Cambridge University professor in partnership with Deutsche Asset and Wealth Management Global Financial Institute (GFI).
In the paper Asset allocation vs. stock selection, Professor Raghavendra Rau, the Sir Evelyn de Rothschild Professor of finance of Cambridge University, concludes that asset allocation strategies yield a superior dispersion in returns than stock selection strategies, particularly when there is an economic crisis or high market volatility.
The paper explores the correlations within and between asset classes from 1991 to 2011. According to GFI, the time period used for this study is “considerably longer” than prior studies on this subject.
Johannes Müller, chief economist at Deutsche Asset & Wealth Management, said: “Asset allocation and stock selection strategies can only be compared effectively when carefully studied across a sufficiently long time period.”
The data used also spans a large spectrum of asset classes, including real estate and commodities.
“This white paper compares the strategies of asset allocation and stock selection after extending the data set from traditional asset classes to a mix of traditional and alternative asset classes,” said GFI.