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Asset allocation with multiple analysts’ views: a robust approach

Author

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  • I-Chen Lu

    (University of Northampton)

  • Kai-Hong Tee

    (Loughborough University)

  • Baibing Li

    (Loughborough University)

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.

Suggested Citation

  • I-Chen Lu & Kai-Hong Tee & Baibing Li, 2019. "Asset allocation with multiple analysts’ views: a robust approach," Journal of Asset Management, Palgrave Macmillan, vol. 20(3), pages 215-228, May.
    • Handle: RePEc:pal:assmgt:v:20:y:2019:i:3:d:10.1057_s41260-019-00115-7
    DOI: 10.1057/s41260-019-00115-7
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    References listed on IDEAS

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    Cited by:

    1. Alireza Ghahtarani & Ahmed Saif & Alireza Ghasemi, 2021. "Robust Portfolio Selection Problems: A Comprehensive Review," Papers 2103.13806, arXiv.org, revised Jan 2022.
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    3. Alireza Ghahtarani & Ahmed Saif & Alireza Ghasemi, 2022. "Robust portfolio selection problems: a comprehensive review," Operational Research, Springer, vol. 22(4), pages 3203-3264, September.

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    More about this item

    Keywords

    Analysts’ recommendation; Black–Litterman model; Fuzzy logic; Portfolio selection; Robust optimisation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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