Tactical asset allocation based on irrationality of the financial markets participants

Lukas Macijauskas

Doctoral dissertation

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Thesis deals with the possibilities of investment in the financial market using the elements of irrational behavior of the participants of financial markets. The analysis of the literature revealed that the discussion between the efficient market`s supporters and critics is still relevant.

If in the academic literature can be found many studies that suggest possibilities of the exploitation methods of the efficiency shoals, then the supporters of an efficient market theory respond easily with studies which clearly demonstrate that in the long run investment funds are unable to outperform their benchmark indices. If the market`s efficiency shoals would be exploited then we dwell with question why the professional investors are unable to use them? Thus, this work aims to glance at the topic of investment management from non-traditional angle, i.e. not questioning the efficiency of the market, but the rationality of its participants.

The main object of this thesis is to develop and practically use the supporting system for decision making in investment portfolios using the principles interpreted as the irrationality of investors. This system would lead to aim for a superior ratio between yield and risk than a passively managed investment portfolio.

This work is aimed to solve the following tasks: to analyze the scientific literature concerning the aspects of market efficacy, to develop a general model forecasting short-term trends of main asset classes price indexes in the financial markets and empirically experience the efficacy and reliability of supporting system using historical data and investing in financial market in real time.

The thesis consists of introduction, three chapters, general conclusions, literature list and the author`s publications list. The first chapter investigates the topic of the effective market, discusses the topic of behavior of irrational market`s participants, glances at the concept of postmodern allocation of asset and also at the methods of investment supported by irrational behavior of market`s participants. The second chapter is dedicated to decision making support systems philosophical basis for detailed disclosure and for the creation and adaptation of the financial market to invest in the real description of the stage. The third section presents the developed system working results together with the historical facts of the data of the main asset classes, and an overview of the real investment`s results whereupon the system was applied in investment fund.

5 articles were published concerning the topic of thesis. 2 papers were presented at scientific conferences, one of which was published in ISI Proceedings data base.

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DOI: https://doi.org/10.20334/2351-M

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Imprint No:
145×205 mm
158 p.
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