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Asset allocation of Australian superannuation funds: a markov regime switching approach

Author

Listed:
  • Emawtee Bissoondoyal-Bheenick

    (RMIT University
    Monash University)

  • Robert Brooks

    (Monash University)

  • Hung Do

    (Massey University
    Vietnam National University)

Abstract

We extend an observable Markov Regime Switching framework to assess the switching behaviour of asset classes of Australian superannuation funds across different fund sizes. We identify the most prominent asset class which contributes to the performance of the investment options and what factors trigger funds’ decisions on rebalancing their portfolio. We find that smaller funds tend to be more active in switching to aggressive options and the larger funds are more conservative. However, in periods of volatility, the large funds are the risk seekers and tend to switch their asset classes and hence their investment strategies. The asset classes whose values add to the performance of the investment options are equity markets and bond markets with the domestic equity market having better performance than international equity market. The switch for the larger funds is driven by volatility of the equity market.

Suggested Citation

  • Emawtee Bissoondoyal-Bheenick & Robert Brooks & Hung Do, 2023. "Asset allocation of Australian superannuation funds: a markov regime switching approach," Annals of Operations Research, Springer, vol. 330(1), pages 485-515, November.
    • Handle: RePEc:spr:annopr:v:330:y:2023:i:1:d:10.1007_s10479-022-04741-0
    DOI: 10.1007/s10479-022-04741-0
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    More about this item

    Keywords

    Superannuation investment strategies; Asset allocation; Switching; Performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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