What is the optimal weight for gold in a portfolio?
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2021Access:
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Lucey, B.M., Peat M., Sevic, A., Vigne S.A., What is the optimal weight for gold in a portfolio?, Annals of Operations Research, 2021, 277 - 291Download Item:
Abstract:
We show that the statistical properties of gold are negatively correlated with equities and that including gold in a portfolio will provide diversification benefits. As there is no consensus on the proportion of gold that should be included in a strategic portfolio allocation we propose a visual tool that associates a performance metric with a range of possible asset weighting schemes—a Sharpe ratio response surface. This very surface shows that a target performance metric can be achieved with a large number of different allocations. We further argue that the rebalancing approach based on the surface closest to the benchmark surface under the Hausdorrf distance metric should be selected. Using a data sample between 1990 and 2018, we find that annual rebalancing with a 44-week lookback period achieves the minimum distance from the benchmark surface.
Author's Homepage:
http://people.tcd.ie/svignehttp://people.tcd.ie/sevica
http://people.tcd.ie/blucey
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Annals of Operations ResearchAvailability:
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Gold, Portfolio allocationSubject (TCD):
International Development , International Integration , Finance , International Finance , economics and financeMetadata
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