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Portable Alphas from Pension Mispricing

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Author Info
José M. Marín ()
Francesco Franzoni

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Abstract

We introduce a new dynamic trading strategy based on the systematic misspricing of U.S. companies sponsoring Defined Benefit pension plans. This portfolio produces an average return of 1.51% monthly between 1989 and 2004, with a Sharpe Ratio of 0.26. The returns of the strategy are not explained by those of primary assets. These returns are not related to those of benchmarks in the alternative investments industry either. Hence, we are in the presence of a "pure alpha" strategy that can be ported into a large variety of portfolios to significantly enhance their performance.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/894.pdf
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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 894.

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Date of creation: Oct 2005
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Handle: RePEc:upf:upfgen:894

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Defined Benefit Plans; Portable Alpha; Enhanced Indexing; Pension Contributions; Pricing Anomaly;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Brown, Stephen J. & Goetzmann, William N., 1997. "Mutual fund styles," Journal of Financial Economics, Elsevier, vol. 43(3), pages 373-399, March. [Downloadable!] (restricted)
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  2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  3. William Goetzmann & Jonathan Ingersoll & Matthew I. Spiegel & Ivo Welch, 2002. "Sharpening Sharpe Ratios," NBER Working Papers 9116, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Francesco Franzoni & José M. Marín, 2005. "Pension Plan Funding and Stock Market Efficiency," Economics Working Papers 871, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-27.

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