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The total benefit of alternative assets to pension fund portfolios

Author

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  • Jackwerth, Jens Carsten
  • Slavutskaya, Anna

Abstract

Pension funds only quite recently have explored alternative assets, prodded by financial crises that devastated equity returns and led to low bond returns. We assess the addition of alternative assets to pension fund portfolios in terms of the total benefit derived from diversification, addition of positive skewness, and the elimination of left tails in returns. During 1994–2012, adding portfolios of hedge funds produced significantly higher total benefits than adding real estate, commodities, foreign equities, mutual funds, funds of funds, as well as some counter cyclical and non-cyclical assets. Conditioning on past total benefits improves the out-of-sample performance even further.

Suggested Citation

  • Jackwerth, Jens Carsten & Slavutskaya, Anna, 2016. "The total benefit of alternative assets to pension fund portfolios," Journal of Financial Markets, Elsevier, vol. 31(C), pages 25-42.
  • Handle: RePEc:eee:finmar:v:31:y:2016:i:c:p:25-42
    DOI: 10.1016/j.finmar.2016.06.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Platanakis, Emmanouil & Sakkas, Athanasios & Sutcliffe, Charles, 2019. "Harmful diversification: Evidence from alternative investments," The British Accounting Review, Elsevier, vol. 51(1), pages 1-23.
    2. repec:mth:ijafr8:v:9:y:2019:i:1:p:366-378 is not listed on IDEAS
    3. repec:spt:fininv:v:7:y:2018:i:1:f:7_1_1 is not listed on IDEAS
    4. Rob Bauer & Matteo Bonneti & Dirk Broeders, 2018. "Pension Funds Interconnections and Herd Behavior," DNB Working Papers 612, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    Hedge funds; Pension funds; Performance measurement; Certainty equivalent; Alpha;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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