Long-term asset allocation, risk tolerance and market sentiment - Archive ouverte HAL
Article Dans Une Revue Journal of International Financial Markets, Institutions and Money Année : 2019

Long-term asset allocation, risk tolerance and market sentiment

Résumé

This paper studies optimal equity portfolios with long-term horizon under heterogeneous risk aversion levels. We focus on European stocks and empirically show that contemporaneous excess returns of semi-active strategies are negatively associated with market conditions and sentiment. Consistent with our long-horizon perspective, we find that the effects of sentiment measures on semi-active portfolio returns are sizeable and economically relevant, particularly in bull (post-crisis) periods, even after controlling for the five Fama-French factors, momentum, macro indicators and political uncertainty shocks either globally or country-wise. By contrast, the effects of sentiment measures on the passive (benchmark) portfolio appear to be negligible. The results further indicate that realized portfolio returns generated from our long-term strategies are considerably resilient to the episodes of flight-to-safety (risk-off) regimes.
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hal-02510242 , version 1 (20-07-2022)

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Deniz Erdemlioglu, Robert Joliet. Long-term asset allocation, risk tolerance and market sentiment. Journal of International Financial Markets, Institutions and Money, 2019, 62, pp.1-19. ⟨10.1016/j.intfin.2019.04.004⟩. ⟨hal-02510242⟩
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