Household portfolio optimization with XTFs? An empirical study using the SHS-base

Oehler, Andreas; Wanger, Hans Philipp

doi:10.1016/j.ribaf.2019.101103

Cited by 8 publications

(22 citation statements)

References 41 publications

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“…The emergence of robo-advisers helps households to implement a popular advice of practitioners and academics in the field of households finance: to invest in broad market indexes and rebalance the portfolio regularly to harvest the benefits of portfolio diversification (see, e.g., Oehler and Wanger 2019;Jacobs et al 2014 and the therein cited literature). The background of this advice is that households usually suffer from concentrated portfolios with relatively few stocks (e.g., Goetzmann and Kumar 2008;Polkovnichenko 2005) combined with inefficient security selection and low market timing abilities (e.g.…”

Section: Related Literaturementioning

confidence: 99%

“…The first part of their service-helping households to establish a diversified portfolio of stock and bond exchange traded funds-is free of charge although this service can significantly enhance households' risk-return position compared to a portfolio of individual stocks and bonds (see Oehler and Wanger 2019). Furthermore, the pure presence of this service-just like a financial advisor-might encourage some households that do not participate in risky asset markets yet (e.g., because the households feel not competent enough (e.g., Gennaioli et al 2015) or mistrust financial markets (e.g., Guiso et al 2008)) to invest in some risky assets at all (see Foerster et al 2017) and therefore enhance these households' investment performance.…”

Section: Introductionmentioning

confidence: 99%

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Automated portfolio rebalancing: Automatic erosion of investment performance?

Horn

Oehler

2020

J Asset Manag

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Robo-advisers enable investors to establish an automated rebalancing strategy for a portfolio usually consisting of stocks and bonds. Since households’ portfolios additionally include further frequently tradable assets like real estate funds, articles of great value and cash(-equivalents), we analyze whether households would benefit from a service that automatically rebalances a portfolio which additionally includes the latter assets. In contrast to previous studies, this paper relies on real-world household portfolios, which are derived from the German central bank’s (Deutsche Bundesbank) Panel on Household Finances (PHF)-Survey. We compute the portfolio performance increase/decrease that households would have achieved by employing rebalancing strategies instead of a buy-and-hold strategy in the period from September 2010 to July 2015 and analyze whether subsamples of households with certain sociodemographic and socioeconomic characteristics would have benefited more from portfolio rebalancing than other household subsamples. The empirical analysis shows that the analyzed German households would not have benefited from an automated rebalancing service and that no subgroup of households would have significantly outperformed another subgroup in the presence of rebalancing strategies.

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Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Automated portfolio rebalancing: Automatic erosion of investment performance?

Horn

Oehler

2020

J Asset Manag

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“…Barber and Odean ( 2000 , 2001 ), Polkovnichenko ( 2005 ), and Goetzmann and Kumar ( 2008 ) show that many investors (most probably not only ESG investors) are under-diversified and suffer from associated idiosyncratic risks. If investors are not willing to minimize their exposure to idiosyncratic risk by buying index funds (Oehler and Wanger 2020 ) 24 , they may have a better investment performance by investing in stocks of companies with high ESG ratings. However, although statistically significant in the cross sections of stocks, the economic magnitude of a higher ESG rating is rather small and may not justify the reallocation of an existing portfolio and the respective transaction costs (see Horn and Oehler 2020 ).…”

Section: Discussionmentioning

confidence: 99%

The Influence of ESG Ratings On Idiosyncratic Stock Risk: The Unrated, the Good, the Bad, and the Sinners

Horn

2023

Schmalenbach J Bus Res

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This study analyzes whether stocks of companies with environmental social governance (ESG) rating show lower idiosyncratic risk. The main analysis covers 898,757 company-month observations of US stocks in the period from 1991 to 2018 and controls for stocks’ exposure to liquidity, mispricing, innovations in volatility risk, investor sentiment, and analysts’ forecast divergence. The main finding is that the receipt of an ESG rating decreases idiosyncratic stock risk. The effect is stronger for stocks that receive a higher ESG rating. Nevertheless, even when companies receive a lower ESG rating, they show significantly lower idiosyncratic risk than stocks without an ESG rating. Furthermore, stocks subject to a negative screen show lower idiosyncratic risk during recessions than comparable stocks with an ESG rating but without a negative screen. The results support the notion that the receipt of an ESG rating decreases uncertainty regarding future stock risk and return and show that ESG ratings and negative screens individually influence stock risk and, therefore, should be considered separately.

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“…A common advice to households, therefore, is to hold low-fee, passive exchange traded funds (ETFs) that replicate a broad and internationally diversified market index (see, e.g. Malkiel, 2003;French, 2008;Huang and Downside-risk and household investment in XTF Lin, 2011;Jacobs et al, 2014;Bhattacharya et al, 2017;Elton et al, 2019), also referred to as XTFs (see Oehler and Wanger, 2020). However, although assets under management of ETFs largely increased in the last decade (see, e.g.…”

Section: Introductionmentioning

confidence: 99%

“…DAB Bank, 2004;Hackethal et al, 2011) although financial advisors build very similar instead of individualized portfolio compositions according to a household's characteristics (see Foerster et al, 2017). We thus rely on stylized portfolio compositions of households, so called household portfolio types (HPTs) (see Oehler and Wanger, 2020). HPTs are clusters of asset class weights, i.e.…”

Section: Introductionmentioning

confidence: 99%

Can downside-risk measures help to explain the reluctance of households to invest in XTFs? An empirical study using the SHS-base

Wanger

Oehler

2022

RBF

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PurposeThe purpose of this paper is to investigate whether downside-risk measures help to explain why households largely refrain from investing in Exchange Traded Funds that replicate broad and internationally diversified market indices, so-called XTFs, although studies frequently recommend to do so.Design/methodology/approachThe paper analyzes whether evaluating risk in terms of downside-risk measures which reflect households' interpretation of risk closer than the standard deviation (SD) of returns, yields less risk-return-enhancements, and thus, fewer incentives for households to invest in XTFs. Household portfolios are compiled by combining stylized portfolio compositions that involve multiple asset classes and German households' security holdings. The data set covers the period from January 2014 to December 2016 and includes 47,388 securities.FindingsThe results indicate that none of the downside-risk measures can help to explain the reluctance of households to invest in XTFs. On the flip side, the results show that all stylized household portfolios can enhance the risk-return position from employing XTFs, regardless of the underlying risk measure. This supports the advice to invest in XTFs and extends it upon households that evaluate risk in terms of downside-risk.Originality/valueTo the best of the authors' knowledge, this study is the first to investigate risk-return-enhancements from XTFs while simultaneously considering various downside-risk measures and multiple asset classes of household portfolios.

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Household portfolio optimization with XTFs? An empirical study using the SHS-base

Cited by 8 publications

References 41 publications

Automated portfolio rebalancing: Automatic erosion of investment performance?

Automated portfolio rebalancing: Automatic erosion of investment performance?

The Influence of ESG Ratings On Idiosyncratic Stock Risk: The Unrated, the Good, the Bad, and the Sinners

Can downside-risk measures help to explain the reluctance of households to invest in XTFs? An empirical study using the SHS-base

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