International Conditional Asset Allocation under Real Time Uncertainty

Abstract

This paper examines the impact of real time uncertainty on the performance of international mean-variance conditional asset allocation. This notion can be defined as the uncertainty faced by an investor regarding specification choices necessary to implement a conditional strategy. To assess the impact of this phenomenon, we investigate a comprehensive set of strategies that an investor could reasonably consider. We find that real time uncertainty significantly reduces the performance of international conditional asset allocation. Our findings provide an explanation to the apparent paradox between the statistical and economic significance of predictability that has been previously documented. These results are consistent with the semi-strong form of market efficiency.