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Applying News Sentiment for Optimizing Strategic Asset Allocations

Philippe Rohner and Matthias W. Uhl
The Journal of Investing Behavioral Finance 2022, joi.2021.1.203; DOI: https://doi.org/10.3905/joi.2021.1.203
Philippe Rohner
is COO at PPCmetrics and a lecturer at University of Zurich in Zurich, Switzerland
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Matthias W. Uhl
is head of analytics & quant modeling (AQM) at UBS Asset Management, Investment Solutions and a lecturer at the University of Zurich in Zurich, Switzerland
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Abstract

In this article, the authors show that it is possible to enhance traditional Black and Litterman strategic asset allocation (SAA) models with a behavioral approach based on news sentiment. In an out-of-sample backtest over 10 years, the news sentiment–based SAA outperforms the benchmark SAA by 0.5% a year with less risk and a 20% higher Sharpe ratio. The news sentiment data are also statistically different from price momentum measures.

Key Findings

  • ▪ The authors enhance traditional Black and Litterman strategic asset allocation (SAA) models with a behavioral approach based on news sentiment.

  • ▪ Sharpe ratios of such portfolios are enhanced by up to 20% compared with more traditional SAAs.

  • ▪ The authors demonstrate that news sentiment is statistically different from price momentum measures.

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Applying News Sentiment for Optimizing Strategic Asset Allocations
Philippe Rohner, Matthias W. Uhl
The Journal of Investing Sep 2021, joi.2021.1.203; DOI: 10.3905/joi.2021.1.203

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Applying News Sentiment for Optimizing Strategic Asset Allocations
Philippe Rohner, Matthias W. Uhl
The Journal of Investing Sep 2021, joi.2021.1.203; DOI: 10.3905/joi.2021.1.203
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  • Article
    • Abstract
    • LONG-TERM NEWS SENTIMENT AND STRATEGIC ASSET ALLOCATIONS
    • SAA PORTFOLIO CONSTRUCTION WITH NEWS SENTIMENT
    • EMPIRICAL ANALYSIS
    • CONCLUSION
    • APPENDIX A
    • APPENDIX B
    • APPENDIX C
    • ENDNOTES
    • REFERENCES
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