Smoothing and Implications for Asset Allocation Choices

摘要

Smoothing is the phenomenon that causes a lag effect and reduced volatility in valuation-based indices in comparison with the underlying market which is represented by accurate transaction-based indices. Indicators of smoothing are easily found in time series analyses of valuation-based indices, and the factors underlying those results have been extensively discussed in the literature. However, to date, this discussion has not resulted in a generally accepted quantitative measure of the extent to which returns should be unsmoothed in constructing mixed-asset portfolios.