A Century of Generalized Momentum
We enjoy collaborating on new research projects simply because nobody has a monopoly on interesting ideas. Where our expertise in asset allocation, tactical strategies and portfolio optimization methods might prove useful, we are always open to discussing new and ongoing research.
To this end, about two months ago we were honoured when Wouter J. Keller, CEO of Flex Capital and Professor Emeritus at Vrije University Amsterdam, invited us to collaborate on a paper exploring a new heuristic optimization, Elastic Asset Allocation, which follows from his previous work on Flexible Asset Allocation (FAA) and the more esoteric Modern Asset Allocation (MAA). These are excellent contributions to the existing literature on dynamic asset allocation, and complement our Adaptive Asset Allocation concept.
From the abstract of the new paper:
“In this paper we generalize [Flexible Asset Allocation] FAA, starting from a tactical version of Modern Portfolio Theory (MPT) proposed in Keller (2013). Instead of choosing assets in the portfolio by a weighted ordinal rank on R, V, and C as in FAA, our new methodology – called Elastic Asset Allocation (EAA) – uses a geometrical weighted average of the historical returns, volatilities and correlations, using elasticities as weights.”
We hope you enjoy the read. The full paper is below.