This course covers advanced topics in investments from a macro asset allocation perspective. We take the view of a long-term investor, e.g., a global macro hedge fund or a pension fund, seeking to dynamically allocate investments across broad asset classes such as equities, corporate and sovereign bonds, and private equity. Building an asset allocation strategy requires an understanding of the dynamics of risk and return in these asset classes. We will use empirical techniques, including return forecasting regressions, shrinkage estimation, and out-of-sample evaluation methods to shed light on these empirical dynamics. Furthermore, we will see how data from investor surveys and on investor flows can be used to assess the state of investor sentiment. To use the empirical evidence in asset allocation decisions, we will extend the mean-variance portfolio choice framework that you encountered in your introductory investments class to analyze multi-period portfolio policies over long horizons. We will also evaluate practical rule-of-thumb approaches such as risk parity and naive diversification strategies. We will explore in detail the use of leverage, volatility derivatives, and tail-risk hedging; macro risk factors linked to interest rates and monetary policy; inflation risk and inflation-protected bonds; bubbly assets such as crypto currencies or gold. We will discuss the special challenges that investors face in integrating private equity investments, and other similarly illiquid assets, in an asset allocation framework.
