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  4. Liquidity-driven approach to dynamic asset allocation: evidence from the German stock market
 
Verlagslink DOI
10.1007/s11408-015-0257-1

Liquidity-driven approach to dynamic asset allocation: evidence from the German stock market

Veröffentlichungsdatum
2015-09-24
Autoren
Baitinger, Eduard  
Fieberg, Christian  
Poddig, Thorsten  
Varmaz, Armin  
Zusammenfassung
Fluctuations in market-wide liquidity may offer opportunities of earning illiquidity premiums. For the US stock market, an investment strategy that profitably exploits these market-wide liquidity fluctuations is proposed by Xiong (J Portf Manag 39(3):102–111, 2013), who focus on an in-sample analysis. In this article, we firstly replicate the liquidity-driven investment strategy of Xiong (J Portf Manag 39(3):102– 111, 2013) for the German stock market showing that a successful harvesting of illiquidity premiums is possible as well. Secondly, we extend the study design of Xiong (JPortfManag39(3):102–111,2013)inthatweconductastrictout-of-sampleanalysis. Our results show that the initial superior in-sample results drastically deteriorate in an out-of-sample framework rendering the practical application of the liquidity-driven investment strategy for the German stock market impossible. Lastly, we modify the rather static investment methodology by a novel approach in which the asset allocation responds flexibly to market-wide liquidity fluctuations. This modification leads to significant performance improvements.
Schlagwörter
Dynamic asset allocation

; 

Liquidity ·

; 

Amihud illiquidity measure

; 

Liquidity risk

; 

Investment strategy

; 

Out-of-sample study
Institution
Hochschule Bremen  
Fachbereich
Hochschule Bremen - Fakultät 1: Wirtschaftswissenschaften - School of International Business (SiB)  
Dokumenttyp
Artikel/Aufsatz
Zeitschrift/Sammelwerk
Financial Markets and Portfolio Management  
Band
29
Heft
November
Startseite
365
Endseite
379
Zweitveröffentlichung
Nein
Sprache
Englisch

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