scholarly journals Optimal portfolio and spending rules for endowment funds

2019 ◽  
Vol 55 (2) ◽  
pp. 671-693
Author(s):  
Muhammad Kashif ◽  
Francesco Menoncin ◽  
Iqbal Owadally
Keyword(s):  
Numerical Analysis ◽  
Asset Allocation ◽  
Optimal Portfolio ◽  
Dynamic Asset Allocation ◽  
Optimal Portfolios ◽  
Allocation Model ◽  
Hybrid Strategy ◽  
Market Growth ◽  
Long Run

AbstractWe investigate the role of different spending rules in a dynamic asset allocation model for university endowment funds. In particular, we consider the fixed consumption-wealth ratio (CW) rule and the hybrid rule which smoothes spending over time. We derive the optimal portfolios under these two strategies and compare them with a theoretically optimal (Merton) strategy. We show that the optimal portfolio with habit is less risky compared to the optimal portfolio without habit. A calibrated numerical analysis on U.S. data shows, similarly, that the optimal portfolio under the hybrid strategy is less risky than the optimal portfolios under both the CW and the classical Merton strategies, in typical market conditions. Our numerical analysis also shows that spending under the hybrid strategy is less volatile than the other strategies. Thus, endowments following the hybrid spending rule use asset allocation to protect spending. However, in terms of the endowment’s wealth, the hybrid strategy comparatively outperforms the conventional Merton and CW strategies when the market is highly volatile but under-performs them when there is strong stock market growth and low volatility. Overall, the hybrid strategy is effective in terms of stability of spending and intergenerational equity because, even if it allows short-term fluctuation in spending, it ensures greater stability in the long run.

The Black-Litterman Model for Portfolio Optimization on Vietnam Stock Market

2020 ◽  
Vol 28 (Supp01) ◽  
pp. 99-111
Author(s):  
Bao Quoc Ta ◽  
Thao Vuong
Keyword(s):  
Stock Market ◽  
Portfolio Optimization ◽  
Portfolio Management ◽  
Asset Allocation ◽  
Market Equilibrium ◽  
Management Model ◽  
Optimal Portfolios ◽  
Allocation Model ◽  
Allocation Process ◽  
Allocation Decisions

The Black-Litterman asset allocation model is an extended portfolio management model to construct optimal portfolios by combining the market equilibrium with investor views into asset allocation decisions. In this paper we apply Black-Litterman model for portfolio optimization on Vietnames stock market. We chose ARIMA methodology utilized in financial econonometrics to predict the views of investor which are used as inputs of the Black-Litterman asset allocation process to find optimal portfolio and weights.

scholarly journals Capital market development over the long run: the portfolios of UK life assurers over two centuries

2021 ◽  
Author(s):  
David A Bogle ◽  
Christopher Coyle ◽  
John D Turner
Keyword(s):  
Capital Market ◽  
Asset Allocation ◽  
The United States ◽  
Market Development ◽  
Historical Contingency ◽  
Government Response ◽  
Long Run ◽  
The Uk ◽  
Macroeconomic Environment

Abstract What shapes and drives capital market development over the long run? In this paper, using the asset portfolios of UK life assurers, we examine the role of regulation, historical contingency, and political reactions to events on the long-run development of the UK capital market. Government response to events such as war, hegemony-secured peace, and the wider macroeconomic environment was the ultimate determinant of major changes in asset allocation since 1800. Furthermore, when we compare the UK with the United States, we find that regulation played a limited role in shaping the asset portfolios of the UK life assurance industry.

Volatility Trading: What Is the Role of the Long-Run Volatility Component?

2012 ◽  
Vol 47 (2) ◽  
pp. 273-307 ◽  
Author(s):  
Guofu Zhou ◽  
Yingzi Zhu
Keyword(s):  
Asset Allocation ◽  
Stochastic Volatility Model ◽  
Economic Losses ◽  
Recursive Utility ◽  
Elasticity Of Intertemporal Substitution ◽  
Long Run ◽  
Volatility Model ◽  
The Impact ◽  
Hedging Demand

AbstractWe study an investor’s asset allocation problem with a recursive utility and with tradable volatility that follows a 2-factor stochastic volatility model. Consistent with previous findings under the additive utility, we show that the investor can benefit substantially from volatility trading due to hedging demand. Unlike existing studies, we find that the impact of elasticity of intertemporal substitution (EIS) on investment decisions is of 1st-order importance. Moreover, the investor can incur significant economic losses due to model and/or parameter misspecifications where the EIS better captures the investor’s attitude toward risk than the risk aversion parameter.

The Impact of Financial Crises on the Asset Allocation: Classical Theory Versus Behavioral Theory

2019 ◽  
Vol 32 (2) ◽  
pp. 218-236
Author(s):  
Amen Aissi Harzallah ◽  
Mouna Boujelbene Abbes
Keyword(s):  
Financial Crisis ◽  
Risk Aversion ◽  
Asset Allocation ◽  
Global Financial Crisis ◽  
Optimal Portfolio ◽  
Optimal Portfolios ◽  
The Mean ◽  
Degree Of Risk ◽  
The Impact ◽  
Mean Variance

The aim of this article is to compare the portfolio optimization generated by the behavioral portfolio theory (BPT) and the mean variance theory (MVT) by investigating the impact of the global financial crisis on the asset allocation. We use data from the Canadian Stock Exchange over the 2002–2015 period. By comparing both approaches, we show that for any level of aspiration and admissible failure, the BPT optimal portfolio will always contain a part of the mean–variance frontier. Thus, in the case of higher degree of risk aversion induced by typical BPT investors, the security set is located on the upper right of the Markowitz frontier. However, even if the optimal portfolios of MVT and BPT may coincide, MVT investors associated with an extremely low degree of risk aversion will not systematically choose BPT optimal portfolios. Our results also indicate the period of financial crisis generate huge losses in MVT portfolio values that implies a lower expected return and a higher level of risk. Furthermore, we point out the absence of the BPT optimal portfolio when potential losses are higher during the 2008 global financial crisis. JEL: G11, G17, G40

scholarly journals Cryptocurrencies: applications and investment opportunities

2019 ◽  
Vol 3 (2) ◽  
pp. 98-112 ◽  
Author(s):  
A. Can Inci ◽  
Rachel Lagasse
Keyword(s):  
Optimization Technique ◽  
Optimal Portfolio ◽  
Complete Analysis ◽  
Sample Period ◽  
Optimal Portfolios ◽  
Content Type ◽  
Investment Opportunities ◽  
Asset Class ◽  
Asset Classes

Purpose This study investigates the role of cryptocurrencies in enhancing the performance of portfolios constructed from traditional asset classes. Using a long sample period covering not only the large value increases but also the dramatic declines during the beginning of 2018, the purpose of this paper is to provide a more complete analysis of the dynamic nature of cryptocurrencies as individual investment opportunities, and as components of optimal portfolios. Design/methodology/approach The mean-variance optimization technique of Merton (1990) is applied to develop the risk and return characteristics of the efficient portfolios, along with the optimal weights of the asset class components in the portfolios. Findings The authors provide evidence that as a single investment, the best cryptocurrency is Ripple, followed by Bitcoin and Litecoin. Furthermore, cryptocurrencies have a useful role in the optimal portfolio construction and in investments, in addition to their original purposes for which they were created. Bitcoin is the best cryptocurrency enhancing the characteristics of the optimal portfolio. Ripple and Litecoin follow in terms of their usefulness in an optimal portfolio as single cryptocurrencies. Including all these cryptocurrencies in a portfolio generates the best (most optimal) results. Contributions of the cryptocurrencies to the optimal portfolio evolve over time. Therefore, the results and conclusions of this study have no guarantee for continuation in an exact manner in the future. However, the increasing popularity and the unique characteristics of cryptocurrencies will assist their future presence in investment portfolios. Originality/value This is one of the first studies that examine the role of popular cryptocurrencies in enhancing a portfolio composed of traditional asset classes. The sample period is the largest that has been used in this strand of the literature, and allows to compare optimal portfolios in early/recent subsamples, and during the pre-/post-cryptocurrency crisis periods.

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