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The Value of Asset Allocation Advice - Evidence of The Economist’s Quarterly Portfolio Poll

  • J. ANNAERT

    ()

  • J.K. DE CEUSTER
  • W. VAN HYFTE

    ()

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    This study analyzes the economic importance of portfolio advice. Academic studies mainly focus on the performance of domestic equity portfolios of mutual or pension funds and attempt to measure abnormal performance following a return-based regression approach. Remarkably little is known empirically about the investment performance of international multiple-asset-class portfolios. We construct recommended portfolios based upon the asset allocation and security market advice of major international investment bankers and analyze the performance using weight-based performance techniques. We conclude that advisers are not able to outperform our benchmarks before transaction and other related costs. Weak performance on the asset allocation level is mainly driven by significant underperformance in the equity market. However, as there is significant and persistent differential performance in the short run, especially in the bond market, choosing the right investment adviser is of decisive importance in achieving abnormal performance. Our results indicate that portfolio advisers are not able to realize superior performance through appropriate timing and selection and as a consequence do not add value to a passive strategy of benchmark investing. Moreover, most of them exhibit strong momentum investing suggesting that they shift their recommended portfolio in favor of assets with high past returns and away from assets with low past returns.

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    File URL: http://wps-feb.ugent.be/Papers/wp_02_160.pdf
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    Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 02/160.

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    Length: 43 pages
    Date of creation: Dec 2002
    Date of revision:
    Handle: RePEc:rug:rugwps:02/160
    Contact details of provider: Postal: Hoveniersberg 4, B-9000 Gent
    Phone: ++ 32 (0) 9 264 34 61
    Fax: ++ 32 (0) 9 264 35 92
    Web page: http://www.ugent.be/eb

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    1. Goetzmann, W.N. & Ibbotson, R.G., 1990. "Do Winners Repeat? Patterns in Mutual Fund Behavior," Papers fb-_91-04, Columbia - Graduate School of Business.
    2. Cornell, Bradford & Green, Kevin, 1991. " The Investment Performance of Low-Grade Bond Funds," Journal of Finance, American Finance Association, vol. 46(1), pages 29-48, March.
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    8. Grinblatt, Mark & Titman, Sheridan, 1994. "A Study of Monthly Mutual Fund Returns and Performance Evaluation Techniques," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(03), pages 419-444, September.
    9. Elton, Edwin J. & Gruber, Martin J., 1991. "Differential information and timing ability," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 117-131, February.
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    12. Cornell, Bradford, 1979. "Asymmetric information and portfolio performance measurement," Journal of Financial Economics, Elsevier, vol. 7(4), pages 381-390, December.
    13. Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
    14. Cumby, Robert E & Glen, Jack D, 1990. " Evaluating the Performance of International Mutual Funds," Journal of Finance, American Finance Association, vol. 45(2), pages 497-521, June.
    15. Jobson, J D & Korkie, Bob M, 1981. "Performance Hypothesis Testing with the Sharpe and Treynor Measures," Journal of Finance, American Finance Association, vol. 36(4), pages 889-908, September.
    16. Blake, David & Lehmann, Bruce N & Timmermann, Allan, 1999. "Asset Allocation Dynamics and Pension Fund Performance," The Journal of Business, University of Chicago Press, vol. 72(4), pages 429-61, October.
    17. Elton, Edwin J, et al, 1993. "Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 1-22.
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