The Importance of the Asset Allocation Decision

Hensel, Chris R.; Ezra, Don; Ilkiw, John H.

doi:10.2469/faj.v47.n4.65

Cited by 74 publications

(24 citation statements)

References 1 publication

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“…What should the market portfolio be? In theory, it is the alternative portfolio that "would be held by an investor who is devoid of investment judgment" (Hensel et al, 1991). Following Xiong et al (2010), we define it as the equally weighted return for all the funds in our universe.…”

Section: Introductionmentioning

confidence: 99%

Rehabilitating the role of active management for pension funds

Aglietta

Brière

Rigot

et al. 2012

Journal of Banking & Finance

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Pension fund returns can be decomposed into different sources, including market movements, asset allocation policy, and active portfolio management. We use a unique database covering the asset allocations of US defined-benefit pension funds for the period 1990-2008, and we test the role of each factor in explaining their returns. Our results shed new light on pension funds' sources of performance. While the previous literature emphasized that policy allocation accounts for the bulk of returns, leaving little room for active management, we show that taking explicit account of market movement can change the results significantly. Although active management plays a minor role in global asset allocation, its role is predominant in explaining returns to individual asset classes, whether traditional or alternative. This paper rehabilitates the contribution of active management as a source of performance for pension funds, at least at the asset class level. AbstractPension fund returns can be decomposed into different sources, including market movements, asset allocation policy, and active portfolio management. We use a unique database covering the asset allocations of US defined-benefit pension funds for the period 1990-2008, and we test the role of each factor in explaining their returns. Our results shed new light on pension funds' sources of performance. While the previous literature emphasized that policy allocation accounts for the bulk of returns, leaving little room for active management, we show that taking explicit account of market movement can change the results significantly.Although active management plays a minor role in global asset allocation, its role is predominant in explaining returns to individual asset classes, whether traditional or alternative. This paper rehabilitates the contribution of active management as a source of performance for pension funds, at least at the asset class level.

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Section: Introductionmentioning

confidence: 99%

Rehabilitating the role of active management for pension funds

Aglietta

Brière

Rigot

et al. 2012

Journal of Banking & Finance

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show abstract

“…It has been widely argued that asset allocation accounts for a substantial part of the variability of mutual fund returns (see Brinson et al [1986Brinson et al [ , 1991, Hensel et al [1991], Ibbotson and Kaplan [2000], etc.). This can easily be explained by the fact that they usually follow buy-and-hold strategies.…”

Section: How Much Of the Variability Of Returns Across Time Is Explaimentioning

confidence: 99%

“…To this end, numerous practitioners and academics have proposed performance attribution models to measure the value added by fund managers through strategic asset allocation and active management (cf. Brinson et al [1986Brinson et al [ , 1991, Hensel et al [1991], Ibbotson and Kaplan [2000], etc.). Surprisingly, despite the growing interest from institutional investors in hedge fund strategies, little attention has been paid so far to the added value and/or the sources of added value of funds of hedge funds (henceforth FoHF) 1 .…”

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confidence: 99%

Determinants of Funds of Hedge Funds' Performance

Amenc¹,

Vaissié²

2006

JOI

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“…Tatical asset allocation is shortterm allocation, regularly adjusts the portfolio in order to take advantage of market opportunities. Stock selection is the most time-consuming stage (Amenc and Le Sourd 2003), and has a greater impact on the return of portfolio (Hensel et al 1991). In this research, investment portfolio is a single asset portfolio.…”

Section: Introductionmentioning

confidence: 99%

Constructing a dynamic stock portfolio decision-making assistance model: using the Taiwan 50 Index constituents as an example

2007

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There are several decisions in investment management process. Security selection is the most time-consuming stage. Tatical allocation is in order to take advantage of market opportunities based on short-term prediction (Amenc and Le Sourd in Portfolio theory and performance analysis. Wiley, 2003). Although it is difficult to keep track of the fluctuations of volatile financial markets, the capacity of artificial intelligence to perform spatial search and obtain feasible solutions has led to its recent widespread adoption in the resolution of financial problems. Classifier systems possess a dynamic learning mechanism, they can be used to constantly explore environmental conditions, and immediately provide appropriate decisions via self-aware learning. This study consequently employs a classifier system in conjunction with real number encoding to investigate how to obtain optimal stock portfolio based on investor adjustment cycle. We examine the constituents of the TSEC Taiwan 50 Index taking moving average (MA), stochastic indicators (KD), moving average convergence divergence (MACD), relative strength index (RSI) and Williams %R (WMS %R) as input factors, adopting investor-determined adjustment cycle to allocate capital, and then constructing stock portfolio. We have conducted empirical testing using weekly and monthly adjustment cycle; the results revealed that this study's decision-making assistance model yields average annual interest rate of 49.35%, which is significantly better than the −6.59% of a random purchase model. This research indicates that a classifier system can effectively monitor market fluctuations and help investors obtain relatively optimal returns. The assistance model proposed in this study thus can provide really helpful decision-making information to investors.

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The Importance of the Asset Allocation Decision

Cited by 74 publications

References 1 publication

Rehabilitating the role of active management for pension funds

Rehabilitating the role of active management for pension funds

Determinants of Funds of Hedge Funds' Performance

Constructing a dynamic stock portfolio decision-making assistance model: using the Taiwan 50 Index constituents as an example

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