Financial Analysts Journal 17 June 2022 Volume 78 Issue 3
Evolutionary Finance for Multi-Asset Investors
Traditional mean–variance optimization focuses on the optimal allocation, but evolutionary finance looks for the optimal strategy. This paper develops a multi-asset evolutionary finance model and finds that yield-based strategies are superior.
Standard strategic asset allocation procedures usually neglect market interaction. However, returns are not generated in a vacuum but the result of the market’s price discovery mechanism. Evolutionary finance accounts for this and endogenizes asset prices.This paper develops a multi-asset evolutionary finance model. Requiring little more than dividend and interest rate data, it provides a valuable guide to this class of models. While traditional mean/variance optimization is concerned with finding the optimal allocation, evolutionary finance’s focus is on finding the optimal strategy. This paper shows that yield-based strategies outperform competing alternatives and are evolutionarily advantageous for multi-asset investors.
About the Authors
Thorsten Hens is a Swiss Finance Institute professor at the University of Zurich in Zurich, Switzerland, and a professor at the University of Lucerne and NHH Bergen.
Michael Schnetzer is the Head of Asset Management at Bank von Roll in Zurich, Switzerland.