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Equity Asset Allocation Model for EUR-based Eastern Europe Pension Funds


  • Robert Kitt

    (Hansa Investment Funds)


This paper is aimed to explain the choice of instrument mix for EUR-based long-term equity investors, like pension funds, in the Eastern Europe. It is assumed that investments into local securities are the investorsí preferred choice. Markowitz mean-variance optimization was used for determining optimal portfolios. Exponentially weighted historical time-series were used for input data. After finding an efficient set of portfolios hypothetical 100Ä was invested (as of March 1993) into the portfolio and this investment was benchmarked against EUR-hedged MSCI World index. Different portfolio mixes with several rebalancing frequencies were tested in the way described. Portfolio mix proposed for real investments is the following: MSCI, North America (40%); MSCI, Europe (35%); MSCI Pacific (10%); MSCI Emerging Markets Free (10%) and MSCI Eastern Europe (5%). This portfolio mix gave a positive result over the period compared to benchmark. Suggested rebalancing frequency is 1 month.

Suggested Citation

  • Robert Kitt, 2004. "Equity Asset Allocation Model for EUR-based Eastern Europe Pension Funds," Working Papers 119, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  • Handle: RePEc:ttu:wpaper:119
    Note: The author would like to thank Dr Jaan Kalda for fruitful discussions and Hansa Investment Funds Ltd for supporting the research. The financial support from the Estonian Science Foundation (grant No 5036) is greatly appreciated.

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    More about this item


    Portfolio theory; mean-variance optimization;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G1 - Financial Economics - - General Financial Markets


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