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A Multiple-Goal Investment Strategy for Sovereign Wealth Funds: An Application to China

Author

Listed:
  • Li Xie

    (Durham University Business School)

  • Wing Thye Woo

    (University of California at Davis Department of Economics)

  • Zhichao Zhang

    (Durham University Business School)

  • Zhuang Zhang

    (Durham University Business School)

Abstract

This paper develops a multiple-goal investment strategy for sovereign wealth funds. In our investment strategy, we embed the Black-Litterman (B-L) model into the mean variance mental accounting (MVMA) approach. The B-L method provides a means of modeling return expectations, and the MVMA framework allows the derivation of the optimal asset allocation from a global investment perspective, in a response to a specific macroeconomic environment. © 2015 The Earth Institute at Columbia University and the Massachusetts Institute of Technology

Suggested Citation

  • Li Xie & Wing Thye Woo & Zhichao Zhang & Zhuang Zhang, 2015. "A Multiple-Goal Investment Strategy for Sovereign Wealth Funds: An Application to China," Asian Economic Papers, MIT Press, vol. 14(1), pages 78-97, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:14:y:2015:i:1:p:78-97
    as

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    References listed on IDEAS

    as
    1. Wing Thye Woo, 2012. "China meets the middle-income trap: the large potholes in the road to catching-up," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(4), pages 313-336, August.
    2. Xiaolu Wang & Wing Thye Woo, 2011. "The Size and Distribution of Hidden Household Income in China," Asian Economic Papers, MIT Press, vol. 10(1), pages 1-26, Winter/Sp.
    3. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    4. Pistor, Katharina, 2009. "Global network finance: Institutional innovation in the global financial market place," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 552-567, December.
    5. Yacine AÏT‐SAHALI & Michael W. Brandt, 2001. "Variable Selection for Portfolio Choice," Journal of Finance, American Finance Association, vol. 56(4), pages 1297-1351, August.
    6. Das, Sanjiv & Markowitz, Harry & Scheid, Jonathan & Statman, Meir, 2010. "Portfolio Optimization with Mental Accounts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(2), pages 311-334, April.
    7. Roberts, Ivan & Rush, Anthony, 2012. "Understanding China's demand for resource imports," China Economic Review, Elsevier, vol. 23(3), pages 566-579.
    8. Cheng, Hui Fang & Gutierrez, Margarida & Mahajan, Arvind & Shachmurove, Yochanan & Shahrokhi, Manuchehr, 2007. "A future global economy to be built by BRICs," Global Finance Journal, Elsevier, vol. 18(2), pages 143-156.
    9. Linda Yueh, 2011. "Re-balancing China: Linking Internal and External Reforms," Asian Economic Papers, MIT Press, vol. 10(2), pages 87-111, Summer.
    10. Wing Thye Woo, 2008. "Understanding the Sources of Friction in U.S.-China Trade Relations: The Exchange Rate Debate Diverts Attention from Optimum Adjustment," Asian Economic Papers, MIT Press, vol. 7(3), pages 61-95, Fall.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    sovereign wealth funds; Black-Litterman; mean variance mental accounting; MVMA; return expectations; global investment; macroeconomic;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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