Portfolio Tilts using Views on Macroeconomic Regimes

Elkamhi, Redouane; Lee, Jacky S.H.; Salerno, Marco

doi:10.2139/ssrn.3810877

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2021

2022

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Cited by 2 publications

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“…Growth factors are related to both risk assets and pension liabilities (Elkamhi et al . 2021). For example, an increase in growth risk leads to higher equity risk premiums or expected equity returns over risk‐free assets.…”

Section: Resultsmentioning

confidence: 99%

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Surplus Optimization in Defined Benefit Pensions Using the Regime‐Switching Model: Occupational Pension Plans in South Korea*

Jung

Lee

Cheong

2022

Asia-Pac J of Fin Stud

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We assume a hypothetical defined benefit (DB) pension plan that reflects the characteristics of the occupational pension in South Korea and propose a surplus optimization strategy using a regime-switching model. Using conditional surplus at risk, we construct an optimized portfolio that limits extreme tail risks. Furthermore, we identify the surplus risk and return conditional on global macroeconomic status using a hidden Markov model. The main results are that (i) the DB pension portfolio should move from principal-protected products to diverse capital market products, and (ii) the DB pension portfolio using the regime-switching model outperforms an unconditional static portfolio.

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Section: Resultsmentioning

confidence: 99%

“…In this study, we use regime analysis in the ALM context and growth factor to identify economic regimes. Growth factors are related to both risk assets and pension liabilities (Elkamhi et al 2021). For example, an increase in growth risk leads to higher equity risk premiums or expected equity returns over risk-free assets.…”

Section: Data and Statisticsmentioning

confidence: 99%