Blake, David and Timmermann, Allan (2002) International asset allocation with time-varying investment opportunities. Financial Markets Group Discussion Papers (424). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
This paper analyses the international equity holdings of a large panel of UK pension funds. We find considerable evidence of market timing activity, as illustrated by the funds' decision to scale back their investments in the US stock market during the 1990s. To explain this we model portfolio weight dynamics as a function of time-varying conditional moments. We find that a substantial part of the evolution in portfolio weights is explained by time-varying conditional expected returns, volatilities and covariances with domestic equity returns. Consequently, controlling for the effect of state variables that track time-variations in investment opportunities significantly affects estimates of returns from international market timing. Our estimates suggest that the portfolio movements that were orthogonal to such state variables accounted for a net loss of 0.2 per cent per annum for the average fund.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2002 The Authors |
| Divisions: | Financial Markets Group Economics |
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| Date Deposited: | 20 Aug 2009 13:39 |
| Last Modified: | 13 Sep 2024 19:47 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24944 |
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