Working Paper: NBER ID: w4623
Authors: Campbell R. Harvey
Abstract: Within the context of conditional asset allocation strategies, this paper explores the implications of the low correlations of the emerging market returns with developed market returns and the relatively high degree predictability of emerging countries' returns. It is well known that low correlations improve investment opportunities and my research provides out-of-sample validation of the improved performance. However, the most dramatic enhancement is generated by the use of conditioning information. Portfolio strategies that use conditioning information to predict emerging market returns produce impressive out-of-sample performance over the 1980-1992 period.
Keywords: Asset Allocation; Emerging Markets; Predictability; Investment Strategies
JEL Codes: G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| conditioning information (D83) | predictability of returns (G17) |
| predictability of returns (G17) | better investment decisions (G11) |
| conditioning information (D83) | improved out-of-sample performance (C52) |
| traditional allocation strategies (G11) | predictability of returns (G17) |
| conditioning information (D83) | better performance metrics (C52) |
| traditional asset allocation strategies (G11) | performance outcomes (L25) |