eprintid: 10152947
rev_number: 28
eprint_status: archive
userid: 699
dir: disk0/10/15/29/47
datestamp: 2022-07-29 09:49:25
lastmod: 2023-06-28 12:43:13
status_changed: 2022-07-29 09:49:25
type: working_paper
metadata_visibility: show
sword_depositor: 699
creators_name: Chondrogiannis, Ilias
creators_name: Vivian, Andrew
creators_name: Wohar, Mark E
title: Can Return Forecasts enhance International Asset Allocation? Evidence from the Sum-of-Parts Approach
ispublished: pub
divisions: UCL
divisions: D92
divisions: B03
keywords: Return forecasting, Sum of Parts, Global asset allocation, EMD, International portfolio optimisation
abstract: We examine whether real-time return forecasts are valuable to an investor
looking to allocate their portfolio across a wide selection of countries. We
expand the Sum-of-Parts (SoP) method for forecasting stock returns to an
international setup by adding foreign exchange returns as an additional component. We use two different methods to calculate the forecasts. The first
method (Empirical Mode Decomposition) uses wavelets to frequency decompose each part into locally independent sub-signals, while the second method
combines historical averages and predictive regressions. We then compare
the performance of various types of portfolia under the SoP and historical
average forecasts, with rebalancing taking place every period. We find that
SoP forecasts deliver economic gains to an international investor over the
historical average, especially when the EMD method is implemented. We
further demonstrate that substantial economic gains can be generated for
an international investor based in different home countries. Our results are driven by an increase in the forecast performance of each part, most notably
the foreign exchange growth rate.
date: 2022-07-28
date_type: published
publisher: UCL School of Slavonic and East European Studies (SSEES)
official_url: https://www.ucl.ac.uk/ssees/
oa_status: green
full_text_type: other
language: eng
primo: open
primo_central: open_green
verified: verified_manual
elements_id: 1967630
doi: 10.14324/000.wp.10152947
lyricists_name: Chondrogiannis, Ilias
lyricists_id: ICHON36
actors_name: Chondrogiannis, Ilias
actors_name: Allington-Smith, Dominic
actors_id: ICHON36
actors_id: DAALL44
actors_role: owner
actors_role: impersonator
full_text_status: public
place_of_pub: London, UK
pages: 35
citation:        Chondrogiannis, Ilias;    Vivian, Andrew;    Wohar, Mark E;      (2022)    Can Return Forecasts enhance International Asset Allocation? Evidence from the Sum-of-Parts Approach.                    UCL School of Slavonic and East European Studies (SSEES): London, UK.       Green open access   
 
document_url: https://discovery.ucl.ac.uk/id/eprint/10152947/7/Chondrogiannis_CVW%2028-6.pdf