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GTAA: applying Value and Momentum across asset classes

GTAA: applying Value and Momentum across asset classes

15-11-2008 | Research

We examined global tactical asset allocation (GTAA) strategies across a broad range of asset classes. We found Momentum and Value strategies applied to GTAA across twelve asset classes deliver statistically and economically significant abnormal returns.

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  • Paper examines GTAA strategies across a broad range of asset classes
  • Momentum and Value applied to GTAA deliver significant abnormal returns
  • Markets may be macro inefficient due to insufficient 'smart money'

In this paper1 we examine GTAA strategies across a broad range of asset classes. Contrary to market timing for single asset classes and tactical allocation across similar assets, this topic has received little attention in the existing literature.

Our main finding is that momentum and value strategies applied to GTAA across twelve asset classes deliver statistically and economically significant abnormal returns. For a long top-quartile and short bottom-quartile portfolio based on a combination of momentum and value signals we find a return exceeding 9% per annum over the 1986-2007 period.

Performance is stable over time, also present in an out-of-sample period and sufficiently high to overcome transaction costs in practice. The return cannot be explained by implicit beta exposures or the Fama French and Carhart hedge factors. We argue that financial markets may be macro inefficient due to insufficient 'smart money' being available to arbitrage mispricing effects away.

1 Blitz, D. C. and Van Vliet, P., 2008, Global Tactical Cross-Asset Allocation: Applying Value and Momentum Across Asset Classes, Journal of Portfolio Management.

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