RT Journal Article
SR Electronic
T1 Speed of Adjustment in U.S. Financial Markets
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 62
OP 69
DO 10.3905/jpm.2006.611804
VO 32
IS 2
A1 T. Daniel Coggin
A1 Bala G Arshanapalli
YR 2006
UL https://pm-research.com/content/32/2/62.abstract
AB This study uses U.S. financial market data from the post-World War II era to examine whether the statistical evidence supports a flexible-weight asset allocation in U.S. financial markets. A variety of econometric tests are developed to estimate the speed of adjustment of economic time series data subject to unit roots and structural breaks. The findings suggest that successful flexible-weight asset allocation is likely to be difficult. Of all the relationships tested, only the long-term government bonds versus S&P 500 relationship is cointegrated with a significant speed of adjustment parameter. This suggests a predictable long-run equilibrium relationship.TOPICS: Portfolio construction, factors, risk premia, portfolio theory