Asset allocation with multiple analysts’ views: a robust approach

Lu, I.-C., Li, B. and Tee, K.-H. (2019) Asset allocation with multiple analysts’ views: a robust approach. Journal of Asset Management. 20(3), pp. 215-228. 1470-8272.

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Abstract:

Retail investors often make decisions based on professional analysts’ investment recommendations. Although these recommendations contain up-to-date financial information, they are usually expressed in sophisticated but vague forms. In addition, the quality differs from analyst to analyst and recommendations may even be mutually conflicting. This paper addresses these issues by extending the Black–Litterman (BL) method and developing a multi-analyst portfolio selection method, balanced against any over-optimistic forecasts. Our methods accommodate analysts’ ambiguous investment recommendations and the heterogeneity of data from disparate sources. We prove the validity of our model, using an empirical analysis of around 1000 daily financial newsletters collected from two top 10 Taiwanese brokerage firms over a 2-year period. We conclude that analysts’ views contribute to the investment allocation process and enhance the portfolio performance. We confirm that the degree of investors’ confidence in these views influences the portfolio outcome, thus extending the idea of the BL model and improving the practicality of robust optimisation.

Uncontrolled Keywords:

Analysts’ recommendation, Black–Litterman model, Fuzzy logic, Portfolio selection, Robust optimisation

Creators:

Lu, I.-C., Li, B. and Tee, K.-H.

Faculties, Divisions and Institutes:

Faculties > Faculty of Business & Law > Accounting & Finance

Date:

3 April 2019

Date Type:

Publication

Page Range:

pp. 215-228

Journal or Publication Title:

Journal of Asset Management

Volume:

Number:

Number of Pages:

Language:

English

DOI:

10.1057/s41260-019-00115-7

ISSN:

1470-8272

Status:

Published / Disseminated

Refereed:

Yes

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