Three steps to global asset allocation - Intuition and control for the heart of global global investing.

Global asset allocation lies at the heart of global investing. The authors explain that global asset allocation involves a three-step process: forecasting expected asset class returns, building optimal portfolios, and analyzing their out-of-sample performance. Forecasting the expected return is the "art" in global investing, and may rely on qualitative and quantitative methods. Building optimal portfolios is in principle straightforward, but requires care because of the extreme sensitivity of the portfolio to forecasts. Out-of-sample testing is the most reliable verification of the strategy. This framework is a basis for quantitative strategies for global asset allocation.