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Dynamic Asset Allocation: Insights from Theory [and Discussion]

Stewart D. Hodges, R. S. Clarkson and M. A. H. Dempster
Philosophical Transactions: Physical Sciences and Engineering
Vol. 347, No. 1684, Mathematical Models in Finance (Jun. 15, 1994), pp. 587-598
Published by: Royal Society
Stable URL: http://www.jstor.org/stable/54369
Page Count: 12
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Dynamic Asset Allocation: Insights from Theory [and Discussion]
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Abstract

This paper provides a survey of the now considerable academic theory relating to the practice of dynamic asset allocation. This work is scattered through the literature and many of the key ideas are not as accessible or well known as they deserve to be. The paper begins by providing a definition of what is meant by dynamic asset allocation and a description of its most significant features. Next it develops the concept of path independence and its relationship to efficient diversification through time. It is shown that this principle also applies to funds whose performance is appraised relative to an index benchmark. The final sections of the paper describe the implications of recent work on market equilibrium and on performance measurement.

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