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Top-Down Portfolio Allocation

In: Quantitative Global Bond Portfolio Management

Author

Listed:
  • Gueorgui S. Konstantinov
  • Frank J. Fabozzi
  • Joseph S. Simonian

Abstract

Top-down portfolio allocation pertains to the allocation of capital across different countries, sectors, factors, currencies, and other assets. This stands in contrast to bottom-up security selection (discussed in Chapter 7), which is concerned with the allocation of capital to individual securities within an asset class. We frame this chapter using well-known theoretical frameworks from the financial literature. Specifically, we identify several practical and theoretically sound techniques that can assist in portfolio allocation. The main task of portfolio allocation is determining the allocation to asset classes — countries, currencies, or industry sectors. In contrast to portfolio allocation, portfolio selection is the selection of the actual bonds to include in the portfolio once the weight of the asset class in the portfolio is determined via the portfolio allocation process. Following a bottom-up investment approach, portfolio selection has the highest priority, and asset allocation is determined once the individual securities are evaluated…

Suggested Citation

  • Gueorgui S. Konstantinov & Frank J. Fabozzi & Joseph S. Simonian, 2023. "Top-Down Portfolio Allocation," World Scientific Book Chapters, in: Quantitative Global Bond Portfolio Management, chapter 6, pages 175-203, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811272578_0006
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    More about this item

    Keywords

    Fixed-Income; Currency Management; Portfolio Management; Risk Management; Factors; Portfolio Optimization; Hedging; Portfolio Evaluation; Performance Attribution;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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