1. Asset Allocation and Geopolitical Risk Analysis
Global Asset Allocation and Stock Selection
Asset Allocation and Geopolitical Risk Analysis
Campbell R. Harvey
Duke University, Durham, NC USA
National Bureau of Economic Research, Cambridge MA USA

2. Setting February 3, 2003
Campbell Harvey’s advanced elective course: Global Asset Allocation and Stock Selection surveyed to determine
February global allocations
Iraq war scenario probabilities
Stock market impact in various scenarios

3. February Allocations %

4. Benchmark Underweight%
Global equities tactically underweighted by 2.2% in February

5. Geopolitical Risk Analysis: Implications for S&P 500
Four war scenarios. Participants asked about the impact on the S&P of the event over the next six months.
Stand down. All conflict avoided.
Short and easy. War over quickly, minimal causalities.
Long. War not over in six months.
Weapons of Mass Destruction. Either/or WMD used on US troops or resurgence of domestic terror.

6. War Scenarios %

7. Forecasted S&P 500 Returns%

8. Downside: There is a 1 in 10 chance the S&P 500 returns will be below …%

9. Upside: There is a 1 in 10 chance the S&P 500 returns will be above …%

10. Average of Individual Volatilities (Confidence)%

11. Forecast Disagreement%

12. Downside versus Upside%
Calculated as (Upside-Mean)-(Mean-Downside). A value of zero indicates
that the 1/10 chance above and below are symmetric to the forecast.