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- Title
What is the optimal weight for gold in a portfolio?
- Authors
Lucey, Brian M.; Peat, Maurice; Šević, Aleksandar; Vigne, Samuel A.
- Abstract
We show that the statistical properties of gold are negatively correlated with equities and that including gold in a portfolio will provide diversification benefits. As there is no consensus on the proportion of gold that should be included in a strategic portfolio allocation we propose a visual tool that associates a performance metric with a range of possible asset weighting schemes—a Sharpe ratio response surface. This very surface shows that a target performance metric can be achieved with a large number of different allocations. We further argue that the rebalancing approach based on the surface closest to the benchmark surface under the Hausdorrf distance metric should be selected. Using a data sample between 1990 and 2018, we find that annual rebalancing with a 44-week lookback period achieves the minimum distance from the benchmark surface.
- Publication
Annals of Operations Research, 2021, Vol 296, Issue 1/2, p277
- ISSN
0254-5330
- Publication type
Article
- DOI
10.1007/s10479-019-03496-5