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Parametric portfolio policies: An application for a global tactical asset allocation model

Barahona, Ricardo Manuel de Sousa Machado Calvente de
Fonte: NSBE - UNL Publicador: NSBE - UNL
Tipo: Dissertação de Mestrado
Publicado em /06/2012 ENG
Relevância na Pesquisa
46.41%
A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics; Despite the extensive literature on the predictability of asset class returns and its economic significance, it is common for many asset managers to implement portfolio models built around active management within an asset class, while generally having passive allocations to each asset class based on the risk profile of the investor. We can exploit some of the predictability by using information on economic factors and momentum that explain broad asset class moves through a parametric portfolio approach introduced by Brandt, Santa-Clara and Valkanov (2009). I obtain significant improvements over fixed allocations and Markowitz optimal portfolios, even when applying significant restrictions.

Emerging Economies in the 2000s : Real Decoupling and Financial Recoupling

Yeyati, Eduardo Levy; Williams, Tomas
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
36.64%
The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized sell-off during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for emerging markets, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies does not yield conclusive results, a closer look at global emerging market equity and bond funds shows that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.

Unexploited Gains from International Diversification : Patterns of Portfolio Holdings around the World

Didier, Tatiana; Rigobon, Roberto; Schmukler, Sergio L.
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
36.73%
This paper studies how portfolios with a global investment scope are allocated internationally using a unique micro dataset on U.S. equity mutual funds. While mutual funds have great flexibility to invest globally, they invest in a surprisingly limited number of stocks, around 100. The number of holdings in stocks and countries from a given region declines as the investment scope of funds broadens. This restrictive investment practice has costs. A mean-variance strategy shows unexploited gains from further international diversification. Mutual funds investing globally could achieve better risk-adjusted returns by broadening their asset allocation, including stocks held by more specialized funds within the same mutual fund family (company). This investment pattern is not explained by lack of information or instruments, transaction costs, or a better ability of global funds to minimize negative outcomes. Instead, industry practices related to organizational factors seem to play an important role.

Deconstructing Herding : Evidence from Pension Fund Investment Behavior

Raddatz, Claudio; Schmukler, Sergio L.
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
36.8%
Pension funds have been expected to invest in a wide range of securities and provide liquidity to domestic capital markets since they are the most sophisticated investors, with plenty of resources to gather private information and manage portfolios professionally. However, by analyzing unique, monthly asset-level data from the pioneer case of Chile, this paper shows that pension funds tend to herd. This is consistent with pension funds copying each other in their investment strategies as a way to extract information, boost returns, and reduce risk. The authors compute measures of herding across asset classes (equities, government bonds, and private sector bonds) and at different pension fund industry levels. The results show that pension funds herd more in assets for which they have less market information and when risk increases. Moreover, herding is more prevalent across funds that narrowly compete with each other, that is, when comparing funds of the same type across pension fund administrators. There is much less herding within pension fund administrators and across pension fund administrators as a whole. This herding pattern is consistent with incentives for managers to be close to industry benchmarks...

The Political, Regulatory and Market Failures That Caused the US Financial Crisis

Tarr, David G.
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
46.52%
This paper discusses the key regulatory, market and political failures that led to the 2008-2009 United States financial crisis. While Congress was fixing the Savings and Loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was appealing to narrow constituencies. In the mid-1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to lower bank mortgage standards to underserved areas. Crucially, the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest. The author explains that financial deregulation of the past three decades is unrelated to the financial crisis, and makes several recommendations for regulatory reform.

The Long and the Short of Emerging Market Debt

Opazo, Luis; Raddatz, Claudio; Schmukler, Sergio L.
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
36.72%
Emerging economies have tried to promote long-term debt because it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. The authors analyze monthly asset-level portfolios of Chilean institutional investors (mutual funds, pension funds, and insurance companies) and compare their maturity structure to that of US bond mutual funds. Despite being thought to invest long term, Chilean asset-management institutions (mutual and pension funds) hold large amounts of short-term assets relative to US mutual funds and Chilean insurance companies. Short-termism is not driven by lack of instrument availability or tactical behavior. Instead, it seems to be explained by the desire to minimize inflation risk and, more importantly, by manager incentives that tilt demand toward short-term instruments. Extending the maturity of emerging market debt may require reducing risk and reshaping investor incentives.

Pension Funds and Capital Market Development : How Much Bang for the Buck?

Raddatz, Claudio; Schmukler, Sergio L.
Fonte: Washington, DC: World Bank Publicador: Washington, DC: World Bank
Relevância na Pesquisa
36.66%
This paper studies the relation between institutional investors and capital market development by analyzing unique data on monthly asset-level portfolio allocations of Chilean pension funds between 1995 and 2005. The results depict pension funds as large and important institutional investors that tend to hold a large amount of bank deposits, government paper, and short-term assets; buy and hold assets in their portfolios without actively trading them; hold similar portfolios at the asset-class level; simultaneously buy and sell similar assets; and follow momentum strategies when trading. Although pension funds may have contributed to the development of certain primary markets, these patterns do not seem fully consistent with the initial expectations that pension funds would be a dynamic force driving the overall development of capital markets. The results do not appear to be explained by regulatory restrictions. Instead, asset illiquidity and manger incentives might be behind the patterns illustrated in this paper.

Foreign Investment in Local Currency Bonds : Considerations for Emerging Market Public Debt Managers

Sienaert, Alex
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
46.74%
Foreign investors are increasingly important participants in the local currency sovereign bond markets of developing countries. This note provides context on the overall growth of local currency sovereign debt markets in emerging markets and the growth of foreign investor participation in these markets, a short review of the relevant academic literature, and a summary of the sources of foreign demand. The note concludes with a discussion of the implications of growing foreign investor participation for the managers of public domestic debt in developing countries. The aim of the note is to provide a useful, practically-oriented primer for debt managers beginning to engage on this issue, and in particular to facilitate moving the dialogue beyond overly simple categorizations of countries as "emerging markets" and of investors as a homogeneous source of "hot money".

Policies to Promote Saving for Retirement : A Synthetic Overview

Vittas, Dimitri
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
EN_US
Relevância na Pesquisa
46.49%
The author argues that public and private pillars are essential for a well-functioning pension system. Public pillars, funded or unfounded, offer basic benefits that are independent of the performance of financial markets. Since financial markets suffer from prolonged, persistent, and large deviations from long-term trends, they cannot be relied on as the sole provider of pension benefits. Funded pillars provide benefits that are based on long-term capital accumulation and financial market performance. But they need to be privately managed to minimize dependence on public sector institutions and avoid government dominance of the economy and financial markets. The author focuses mainly on the promotion, structure, and regulation of funded pillars. He discusses the case for using compulsion and tax incentives, for exempting some categories of workers such as the very young (under 25), the very old (over the normal retirement age), the very poor (those earning less than 40 percent of the average wage), and the self-employed...

Financial Sector Assessment Program Update : Republic of Poland - Competition and Performance in the Polish Second Pillar

World Bank; International Monetary Fund
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
36.62%
In March 1999, Poland implemented a systemic pension reform that involved the introduction of a multi-pillar pension system to replace the defined benefit (DB), pay-as-you-go (PAYG) system that had been operating since 1949. This technical note on the pension sector was elaborated as part of the Poland Financial Sector Assessment Program, or FSAP update that took place in April-May 2006. The note assesses the structure and performance of the second pillar, as well as its regulatory and supervisory framework. The note is structured as follows. Section two provides an overview of the whole pension system after the 1999 reform, including coverage and fiscal policy in the transition to the new system. Section three analyses the structure and performance of the second pillar, including asset growth, portfolio composition, investment returns, and fees. Section four examines the regulatory and supervisory framework for the second pillar. Section five analyzes briefly the status of capital market development and the main obstacles to the further development of financial instruments suitable to pension funds. Finally...

International Asset Allocations and Capital Flows : The Benchmark Effect

Raddatz, Claudio; Schmukler, Sergio L.; Williams, Tomas
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
46.81%
This paper studies channels through which well-known benchmark indexes impact asset allocations and capital flows across countries. The study uses unique monthly micro-level data of benchmark compositions and mutual fund investments during 1996-2012. Benchmarks have important effects on equity and bond mutual fund portfolios across funds with different degrees of activism. Benchmarks explain, on average, around 70 percent of country allocations and have significant impact even on active funds. Benchmark effects are important after controlling for industry, macroeconomic, and country-specific, time-varying effects. Reverse causality does not drive the results. Exogenous, pre-announced changes in benchmarks result in movements in asset allocations mostly when these changes are implemented (not when announced). By impacting country allocations, benchmarks affect capital flows across countries through direct and indirect channels, including contagion. They explain apparently counterintuitive movements in capital flows...

Institutional Investors and Long-Term Investment : Evidence from Chile

Opazo, Luis; Raddatz, Claudio; Schmukler, Sergio L.
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
36.7%
Developing countries are trying to develop long-term financial markets and institutional investors are expected to play a key role. This paper uses unique evidence on the universe of institutional investors from the leading case of Chile to study to what extent mutual funds, pension funds, and insurance companies hold and bid for long-term instruments, and which factors affect their choices. The paper uses monthly asset-level portfolios to show that, despite the expectations, mutual and pension funds invest mostly in short-term assets relative to insurance companies. The significant difference across maturity structures is not driven by the supply side of debt or tactical behavior. Instead, it seems to be explained by manager incentives (related to short-run monitoring and the liability structure) that, combined with risk factors, tilt portfolios toward short-term instruments, even when long-term investing yields higher returns. Thus, the expansion of large institutional investors does not necessarily imply longer-term markets.

Strategic Interactions and Portfolio Choice in Money Management : Evidence from Colombian Pension Funds

Pedraza Morales, Alvaro
Fonte: World Bank Group, Washington, DC Publicador: World Bank Group, Washington, DC
EN_US
Relevância na Pesquisa
46.9%
This paper studies the portfolio choice of strategic fund managers in the presence of a peer-based underperformance penalty. Evidence is taken from the Colombian pension fund management industry, where six asset managers are in charge of portfolio allocation for the mandatory contributions of the working population. These managers are subject to a peer-based underperformance penalty, known as the Minimum Return Guarantee. The trading behavior by the managers is studied before and after a change in the strictness of the guarantee in June 2007. The evidence suggests that a tighter minimum return guarantee results in more trading in the direction of peers, a behavior that is more pronounced for underperforming managers. These managers rebalance their portfolios by buying securities in which they are underexposed relative to their peers, as opposed to selling assets in which they are overexposed. Overall, the results suggest that incentives for managers to be close to industry benchmarks play an important role in the portfolio allocation of these funds.

Asset Price Effects of Peer Benchmarking

Acharya, Sushant; Pedraza, Alvaro
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Trabalho em Andamento
EN_US
Relevância na Pesquisa
36.77%
This paper estimates the effects of peer benchmarking by institutional investors on asset prices. To identify trades purely due to peer benchmarking as separate from those based on fundamentals or private information, the paper exploits a natural experiment involving a change in a government imposed underperformance penalty applicable to Colombian pension funds. This change in regulation is orthogonal to stock fundamentals and only affects incentives to track peer portfolios allowing the authors to identify the component of demand due to peer benchmarking. The authors find that peer effects among pension fund managers generate excess in stock return volatility, with stocks exhibiting short-term abnormal returns followed by returns reversal in the subsequent quarter. Additionally, peer benchmarking produces an excess in comovement across stock returns beyond the correlation implied by fundamentals.

Towards an Understanding of Lodging Asset Management and its Components

Jackson, Leonard Anthony
Fonte: FIU Digital Commons Publicador: FIU Digital Commons
Tipo: Artigo de Revista Científica Formato: application/pdf
Relevância na Pesquisa
46.62%
Lodging asset management has emerged as one of the most important areas of strategic hotel management. Increasingly, lodging companies are soliciting the services of asset management firms or developing internal asset management competencies. This article synthesizes and discusses the essential components of dynamic lodging asset management. The article provides a detail background on asset management and its importance and explains the role of lodging asset managers and their working relationships with ownership and operators. The article also discusses the competencies and skills of asset managers.

Governance and Investment of Public Pension Assets : Practitioners' Perspectives

Rajkumar, Sudhir; Dorfman, Mark C.
Fonte: World Bank Publicador: World Bank
Tipo: Publications & Research :: Publication; Publications & Research :: Publication
ENGLISH
Relevância na Pesquisa
36.81%
The impact of good governance on investment management and performance is immense. Several key factors contribute to good governance within pension funds, appropriate governance structures; well-defined accountabilities, policies, and procedures; and suitable processes for the selection and operation of governing bodies and managing institutions. Not surprisingly, good governance requires leadership by individuals with the expertise, professionalism, and integrity to navigate a fund's direction and withstand pressures from multiple constituencies. In the current context of aging populations in many countries, fiscal burdens on pension funds are increasing. At the same time, the necessity of delivering on pension commitments in contributory schemes means that governance, transparency, and accountability should be of utmost importance to pension fund managers. With these concerns in mind, part three of this book provides useful perspectives from senior managers of public pension funds, international pension authorities...

Managers, Investors, and Crises : Mutual Fund Strategies in Emerging Markets

Kaminsky, Graciela; Lyons, Richard; Schmukler, Sergio
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
36.61%
The authors address the trading strategies of mutual funds in emerging markets. The data set they develop permits analyses of these strategies at the level of individual portfolios. A methodologically novel feature of their analysis: they disentangle the behavior of fund managers from that of investors. For both managers and investors, they strongly reject the 0 hypothesis of no momentum trading. Funds' momentum trading is positive: they systematically buy winners and sell losers. Contemporaneous momentum trading (buying current winners and selling current losers) is stronger during crises, and stronger for fund investors than for fund managers. Lagged momentum trading (buying past winners and selling past losers) is stronger during noncrises, and stronger for fund managers. Investors also engage in contagion trading-selling assets from one country when asset prices fall in another. These findings are based on data about mutual funds that represent only 10 percent of the market capitalization in the countries considered. Were it a larger share of the market...

Egyptian National Postal Organization : Review of Asset Management Operations

World Bank
Fonte: Washington, DC Publicador: Washington, DC
Tipo: Economic & Sector Work :: Country Financial Accountability Assessment; Economic & Sector Work
ENGLISH; EN_US
Relevância na Pesquisa
36.72%
This report presents the missions observations and recommendations. The mission has not been able to review the investment manual and current investment procedures as the relevant documents have not been yet forwarded by Egyptian National Postal Organization (ENPO) as requested. ENPO was established in 1865 and since its creation it has always had a clear mandate of public service that remains dominant until today despite the growing competitive pressures that the organization is facing in most of its markets. ENPO's activities center around two major categories: postal and other services, and financial services. Postal services include letters (regular and express mails) and parcels. Other services are public services, such as bills payments (telecom, car insurance, and taxes) and government services, including pension payment and government money orders. ENPO currently holds 18 million savings accounts, against 8 million for the rest of the banking sector, making it the first financial institution in the country in terms of number of accounts. In terms of deposits however...

Competition and Performance in the Polish Second Pillar

Rudolph, Heinz; Rocha, Roberto
Fonte: Washington, DC: World Bank Publicador: Washington, DC: World Bank
Tipo: Publications & Research :: Publication; Publications & Research :: Publication
ENGLISH; EN_US
Relevância na Pesquisa
36.63%
This paper provides an assessment of the Polish funded pension system and the quality of the regulatory framework for the accumulation phase. There are two elements that distinguish the Polish pension fund portfolios from other reforming countries': the relatively high component of domestic equity, and the negligible component on international securities. Although this asset allocation has provided relatively high real rates of return in the past, it may not be the case in the future, as further portfolio diversification to other instruments will become necessary to ensure sustainable rates of return. The paper provides a number of recommendations to expand the opportunities of investments to pension funds. The paper finds that pension fund management companies have been able to exploit scale economies in certain areas of the business, such as collection of revenues, and proposes to study mechanisms to enhance them even more by centralizing also the account management system, which may also help to increase portfolio efficiency and competition. The paper suggests that...

Asset Managers and Financial Instability: Evidence of Run Behavior and Run Incentives in Corporate Bond Funds

Wang, Jeffrey J.
Fonte: Harvard University Publicador: Harvard University
Tipo: Thesis or Dissertation; text Formato: application/pdf
EN
Relevância na Pesquisa
46.43%
Asset managers may be a source of systemic risk due to their risk-taking strategies and vulnerability to dramatic outflows. Investor withdrawals trigger asset sales and redemption costs that only impact remaining investors in the fund. Liquidation lag and mark-to-market lag translate these redemption costs into run incentives. This paper first tests for run-like behavior in corporate bond mutual funds and then tests for the underlying run incentive, measured by the NAV impact. I find that illiquid bond funds are significantly more sensitive to past performance than liquid funds and experience up to 43.6% more outflows given a 1% decrease in returns. Furthermore, net flows into bond funds held primarily by institutional investors are less sensitive to performance but more sensitive to illiquidity than flows into funds held by retail investors, suggesting that institutional bond funds may be more vulnerable to runs. Finally, using a novel dataset, I proxy for the illiquidity of a fund’s underlying bonds and quantify the run incentive. Given 10% net outflows, funds that have insufficient cash and hold bonds of illiquidity 3-5 deviations from the mean experience a significant decrease in NAV of about 34-49 basis points. This paper contributes to the mutual fund and runs literature by offering new empirical evidence of run behavior and run incentives in corporate bond funds.; Applied Mathematics