Strategic Asset Allocation With Liabilities: Beyond Stocks and Bonds

Hoevenaars, Roy P. M. M.; Molenaar, Roderick; Schotman, Peter C.; Steenkamp, T.B.M.

doi:10.2139/ssrn.675681

Cited by 60 publications

(73 citation statements)

References 78 publications

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“…Such an effort seems to be particularly appropriate for addressing direct property investments. Finally, recent work by Hoevenaars et al (2005) reports a high welfare cost from ignoring liabilities when solving the strategic asset allocation problem faced by institutional investors. Under the condition that real estate holdings may be useful hedges against the interest rate and inflation risks of a given stock of liabilities, our estimate of the utility loss from excluding real estate from portfolio choices may be biased downwards.…”

Section: Discussionmentioning

confidence: 99%

“…In our paper, we mostly focus on buy and hold strategies and confirm that these results are not altered by the inclusion of real estate. Hoevenaars et al (2005) also study long-run, buy-and-hold, mean-variance asset allocation on US quarterly data that includes NAREITs, hedge funds, commodities and credits returns. After detecting predictability patterns with a restricted VAR on stocks and bonds, they find that public real estate is very similar to stocks, in that it is a poor inflation hedge in the short run, and becomes less risky once the investor horizon exceeds 4 years.…”

Section: Introductionmentioning

confidence: 99%

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Investing for the Long-run in European Real Estate

Fugazza

Guidolin

Nicodano

2007

J Real Estate Finan Econ

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We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different risk aversion levels, horizons, and statistical models capturing predictability in risk premia. Importantly, under one of the scenarios, the investor takes into account the parameter uncertainty implied by the use of estimated coefficients to characterize predictability. We find that real estate ought to play a significant role in optimal portfolio choices, with weights between 12 and 44%. Under plausible assumptions, the welfare costs of either ignoring predictability or restricting portfolio choices to traditional financial assets only are found to be in the order of 150–300 basis points per year. These results are robust to changes in the benchmarks and in the statistical framework. Copyright Springer Science+Business Media, LLC 2007Optimal asset allocation, Real estate, Predictability, Parameter uncertainty, G11, L85,

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Investing for the Long-run in European Real Estate

Fugazza

Guidolin

Nicodano

2007

J Real Estate Finan Econ

View full text Add to dashboard Cite

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“…This is of major importance for long run investors, as it is well known that when returns are predictable the mean-variance asset allocation may differ substantially from the long-term one (see Bodie, 1995) while the investor's planning horizon is irrelevant for portfolio choice when returns are independently and identically distributed. Hoevenaars, Molenaar, Schotman, and Steenkamp (2008) study direct real estate investments in an asset-liability framework.…”

Section: Literature Reviewmentioning

confidence: 99%

Open-ended property funds: Risk and return profile — Diversification benefits and liquidity risks

Haß

Johanning

Rudolph³

et al. 2012

International Review of Financial Analysis

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“…9 By considering a broad set of traditional and alternative asset classes,Hoevenaars et al (2008) provide further evidence on commodities' attractiveness from an inflation hedging perspective. 10 Emerging markets are only partially integrated with world capital markets (DeJong and De Roon 2005) and, thereby offer international investors valuable diversification benefits.…”

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confidence: 99%

Hedge funds and optimal asset allocation: Bayesian expectations and spanning tests

Bessler

Holler

Kurmann

2012

Financ Mark Portf Manag

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This paper analyzes the contribution of hedge funds to optimal asset allocations between 1993 and 2010. The preferences of specific institutional investors are captured by implementing a Bayesian asset allocation framework that incorporates heterogeneous expectations regarding hedge fund alpha. Mean-variance spanning tests are used to infer the ability of hedge funds to significantly enhance the mean-variance efficient frontier. Further, a novel democratic variance decomposition procedure sheds light on the dynamics in the co-movement of hedge fund returns with a set of common benchmark assets. The empirical findings indicate that portfolio benefits of hedge funds are time-varying and strongly depend on investor optimism regarding hedge funds' ability to generate alpha. In general, allocations to hedge funds improve the global minimum variance portfolio even after controlling for short-selling restrictions and minimum diversification constraints. However, due to dynamics underlying the composition of the aggregate hedge fund universe, the factor structure of hedge fund returns has become more similar to the benchmark assets over time.

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Strategic Asset Allocation With Liabilities: Beyond Stocks and Bonds

Cited by 60 publications

References 78 publications

Investing for the Long-run in European Real Estate

Investing for the Long-run in European Real Estate

Open-ended property funds: Risk and return profile — Diversification benefits and liquidity risks

Hedge funds and optimal asset allocation: Bayesian expectations and spanning tests

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