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Superannuation: Switching and Roulette Wheels

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  • Michael E. Drew

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Abstract

The introduction of choice has resulted in Australia’s superannuation system providing unprecedented flexibility (through increased investment options and the timing choices) for members to optimise their expected benefits. This paper examines the impact of switching between investment options using a normalised ranked return or “roulette wheel” approach developed by Bauer and Dahlquist (2001) for the Australian setting. The paper tests various switching strategies for both single-sector and blended options, for the period 1985–2005, finding that members require forecast accuracy of around 70% to be successful at market timing. Finally, the paper considers the impact of switching strategies on accumulated balances.

Suggested Citation

  • Michael E. Drew, 2007. "Superannuation: Switching and Roulette Wheels," School of Economics and Finance Discussion Papers and Working Papers Series 216, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:216 Note: Michael E. Drew is in the School of Economics and Finance, Queensland University of Technology. The author acknowledges the financial support of the Australian Research Council’s Discovery Project funding scheme (#DP0452336, “Modelling the Risk of Defined Contribution Superannuation Plans”). The editorial contribution of Hazel Bateman (Guest Forum Editor) is sincerely appreciated, as are the comments from two anonymous reviewers. All remaining errors are the sole responsibility of the author.
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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2007/TP%20Final%20216.pdf
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    References listed on IDEAS

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    1. Connie Becker & Wayne Ferson & David Myers & Michael Schill, 1998. "Conditional Market Timing with Benchmark Investors," NBER Working Papers 6434, National Bureau of Economic Research, Inc.
    2. Becker, Connie & Ferson, Wayne & Myers, David H. & Schill, Michael J., 1999. "Conditional market timing with benchmark investors," Journal of Financial Economics, Elsevier, vol. 52(1), pages 119-148, April.
    3. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    4. Robert Faff & David R. Gallagher & Eliza Wu, 2005. "Tactical Asset Allocation: Australian Evidence," Australian Journal of Management, Australian School of Business, vol. 30(2), pages 261-282, December.
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    Cited by:

    1. Su (Sally) Gan & Richard Heaney & Paul Gerrans, 2015. "Individual investor portfolio performance in retirement savings accounts," Australian Journal of Management, Australian School of Business, vol. 40(4), pages 652-671, November.

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    Keywords

    Superannuation; investment options;

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