A framework for regime identification and asset allocation

 

Show simple item record

dc.contributor.advisor Bradfield, David en_ZA
dc.contributor.author Kondlo, Mpumelelo en_ZA
dc.date.accessioned 2016-07-20T06:52:16Z
dc.date.available 2016-07-20T06:52:16Z
dc.date.issued 2016 en_ZA
dc.identifier.citation Kondlo, M. 2016. A framework for regime identification and asset allocation. University of Cape Town. en_ZA
dc.identifier.uri http://hdl.handle.net/11427/20475
dc.description.abstract The purpose of this thesis is to examine a regime-based asset allocation strategy and evaluate whether accounting for regime-dependent risk and return of asset classes provides any significant improvement on portfolio performance. The South African market and economy are considered as a proxy for the analysis. Motivation of this thesis stems from the growing body of research by practitioners devoted to models that are reflective of the interdependency between financial assets and the real economy. The asset classes under consideration for the analysis are domestic and foreign cash, domestic and foreign bonds, domestic and foreign equity, inflation linked bonds, property, gold and commodities. In order to evaluate the performance of the regime-based strategy, this thesis proposes a framework based on Principal Component Analysis and Fuzzy Cluster Analysis for regime identification and asset allocation. The performance of the strategy is tested against two strategies that are not cognizant of regime changes. These are an equally weighted portfolio and a buy-and-hold strategy. Furthermore, relative performance analysis was performed by comparing the regime-based strategy proposed in this thesis against the Alexander Forbes Large Manager Watch Index. Due to data limitations, the analysis is done on an in-sample basis without an out-of-sample testing. The results from the analysis showed the extent of outperformance of the proposed regime-based strategy relative to an equally weighted strategy and a buy-and-hold strategy. These results were consistent with existing literature on regime-based strategies. Furthermore, the results provided strong motivation for the use of the regime identification framework together with tactical asset allocation proposed in this thesis. en_ZA
dc.language.iso eng en_ZA
dc.subject.other Statistical Science en_ZA
dc.title A framework for regime identification and asset allocation en_ZA
dc.type Master Thesis
uct.type.publication Research en_ZA
uct.type.resource Thesis en_ZA
dc.publisher.institution University of Cape Town
dc.publisher.faculty Faculty of Science en_ZA
dc.publisher.department Department of Statistical Sciences en_ZA
dc.type.qualificationlevel Masters
dc.type.qualificationname MSc en_ZA
uct.type.filetype Text
uct.type.filetype Image
dc.identifier.apacitation Kondlo, M. (2016). <i>A framework for regime identification and asset allocation</i>. (Thesis). University of Cape Town ,Faculty of Science ,Department of Statistical Sciences. Retrieved from http://hdl.handle.net/11427/20475 en_ZA
dc.identifier.chicagocitation Kondlo, Mpumelelo. <i>"A framework for regime identification and asset allocation."</i> Thesis., University of Cape Town ,Faculty of Science ,Department of Statistical Sciences, 2016. http://hdl.handle.net/11427/20475 en_ZA
dc.identifier.vancouvercitation Kondlo M. A framework for regime identification and asset allocation. [Thesis]. University of Cape Town ,Faculty of Science ,Department of Statistical Sciences, 2016 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/20475 en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Kondlo, Mpumelelo AB - The purpose of this thesis is to examine a regime-based asset allocation strategy and evaluate whether accounting for regime-dependent risk and return of asset classes provides any significant improvement on portfolio performance. The South African market and economy are considered as a proxy for the analysis. Motivation of this thesis stems from the growing body of research by practitioners devoted to models that are reflective of the interdependency between financial assets and the real economy. The asset classes under consideration for the analysis are domestic and foreign cash, domestic and foreign bonds, domestic and foreign equity, inflation linked bonds, property, gold and commodities. In order to evaluate the performance of the regime-based strategy, this thesis proposes a framework based on Principal Component Analysis and Fuzzy Cluster Analysis for regime identification and asset allocation. The performance of the strategy is tested against two strategies that are not cognizant of regime changes. These are an equally weighted portfolio and a buy-and-hold strategy. Furthermore, relative performance analysis was performed by comparing the regime-based strategy proposed in this thesis against the Alexander Forbes Large Manager Watch Index. Due to data limitations, the analysis is done on an in-sample basis without an out-of-sample testing. The results from the analysis showed the extent of outperformance of the proposed regime-based strategy relative to an equally weighted strategy and a buy-and-hold strategy. These results were consistent with existing literature on regime-based strategies. Furthermore, the results provided strong motivation for the use of the regime identification framework together with tactical asset allocation proposed in this thesis. DA - 2016 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2016 T1 - A framework for regime identification and asset allocation TI - A framework for regime identification and asset allocation UR - http://hdl.handle.net/11427/20475 ER - en_ZA


Files in this item

This item appears in the following Collection(s)

Show simple item record