A framework for regime identification and asset allocation

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dc.contributor.advisorBradfield, Daviden_ZA
dc.contributor.authorKondlo, Mpumeleloen_ZA
dc.date.accessioned2016-07-20T06:52:16Z
dc.date.available2016-07-20T06:52:16Z
dc.date.issued2016en_ZA
dc.description.abstractThe 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.identifier.apacitationKondlo, 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/11427/20475en_ZA
dc.identifier.chicagocitationKondlo, 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/11427/20475en_ZA
dc.identifier.citationKondlo, M. 2016. A framework for regime identification and asset allocation. University of Cape Town.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
dc.identifier.urihttp://hdl.handle.net/11427/20475
dc.identifier.vancouvercitationKondlo 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/11427/20475en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentDepartment of Statistical Sciencesen_ZA
dc.publisher.facultyFaculty of Scienceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherStatistical Scienceen_ZA
dc.titleA framework for regime identification and asset allocationen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMScen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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