tactical_AAA {AssetAllocation}

Returns allocations for the Adaptive Asset Allocation strategy on a given date

Description

tactical_AAA determines asset allocations according to the Adaptive Asset Allocation approach described in Butler, Philbrick, Gordillo, and Varadi (2012) <https://dx.doi.org/10.2139/ssrn.2328254>.

Usage

tactical_AAA(strat, reb_date, P, R, risk_free)

Arguments

strat

A list representing an asset allocation strategy. For this particular strategy, strat$asset_class must contain a character vector containing the corresponding asset classes.

reb_date

A date on which the allocation rule is applied.

P

An xts object with daily prices of the tickers in strat.

R

An xts object with daily returns of the tickers in strat.

risk_free

Either an xts object with daily returns of the risk-free asset, or a scalar numeric with the annual risk-free rate in decimals.

Details

The Adaptive Asset Allocation strategy sorts a specific list of assets based on 6-month momentum, selects the top 5 assets, and then calculates weights that yield the minimum portfolio variance. The parameters controlling the number of months for the momentum calculation (n_months_mom, default = 6), number of months of daily data used to estimate the covariance matrix (n_months_mom, default value = 1), and the number of assets to select using the momentum rule (n_assets, default = 5) can be changed by adding them to a list called param in the strat object. This allows the user to apply the simple principle of the strategy (momentum and minimum variance) to any set of assets.

Value

A numeric vector of weights after applying the rule.