Dynamic Drawdown Control for Multi-Asset Allocation

Summary

This document describes a portfolio allocation overlay that uses rolling economic drawdown as a control target. It adjusts allocation weights using drawdown measured over a moving window while accounting for the time value of money, aiming to reflect practical exit constraints such as limited liquidity more closely than peak-to-trough drawdown alone.

The reported backtest combines the CSI 300, a Chinese commodity index, and a Chinese government bond index. The authors say the method kept drawdown near its target, and that adding financial-cycle or macro-regime allocation views through adjusted Sharpe expectations improved returns relative to a portfolio without those views. They also report stronger incremental effects when paired with momentum or trend-based views than with macro fundamental views, and better control than a fixed cap on risky assets. The document provides no detailed performance statistics, parameter settings, or robustness analysis, so these findings should be treated as reported results rather than independent evidence.

Key ideas

• Rolling economic drawdown can serve as a portfolio control target.
• The approach incorporates time value and a rolling window into drawdown measurement.
• Allocation weights are adjusted dynamically to keep portfolio drawdown near a chosen target.
• The reported test uses Chinese equity, commodity, and government bond indices.
• The authors report stronger benefits when combining drawdown control with momentum or trend views.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.