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Portable Alphas from Pension Mispricing

Author

Listed:
  • Francesco Franzoni

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • J. M. Marin

Abstract

We introduce a new dynamic trading strategy based on the systematic mispricing 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

Suggested Citation

  • Francesco Franzoni & J. M. Marin, 2006. "Portable Alphas from Pension Mispricing," Post-Print halshs-00119546, HAL.
    • Handle: RePEc:hal:journl:halshs-00119546
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    Cited by:

    1. Coronado, Julia & Mitchell, Olivia S. & Sharpe, Steven A. & Blake Nesbitt, S., 2008. "Footnotes aren't enough: the impact of pension accounting on stock values," Journal of Pension Economics and Finance, Cambridge University Press, vol. 7(3), pages 257-276, November.
    2. Nakajima, Kan & Sasaki, Takafumi, 2010. "Unfunded pension liabilities and stock returns," Pacific-Basin Finance Journal, Elsevier, vol. 18(1), pages 47-63, January.
    3. Atanasova, Christina & Hrazdil, Karel, 2010. "Why do healthy firms freeze their defined-benefit pension plans?," Global Finance Journal, Elsevier, vol. 21(3), pages 293-303.
    4. Franzoni, Francesco, 2009. "Underinvestment vs. overinvestment: Evidence from price reactions to pension contributions," Journal of Financial Economics, Elsevier, vol. 92(3), pages 491-518, June.

    More about this item

    Keywords

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    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; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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