Strategic asset allocation: The effect of uncertainty on portfolio choice

250 Pages·2011·2.26 MB·Dutch

Bart Diris
Strategic Asset Allocation
The Effect of Uncertainty on Portfolio Choice
PhD Thesis 2011-006
Strategic asset allocation
The effect of uncertainty on portfolio choice
(cid:2)c2011 BartDiris,Maastricht
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ISBN:978-94-6159-060-2
Printedby Datawyse bv|Universitaire PersMaastricht
Strategic asset allocation
Theeffect ofuncertainty onportfoliochoice
PROEFSCHRIFT
terverkrijgingvan degraad vandoctor
aan deUniversiteit Maastricht,
op gezag vandeRector Magnificus,
Prof. mr. G.P.M.F. Mols
volgens hetbesluitvanhetCollege vanDecanen,
inhetopenbaarteverdedigen
opwoensdag25mei2011 om12.00 uur
door
BartFranciscus Diris
U
P
M
UNIVERSITAIRE
PERSMAASTRICHT
Promotores:
Prof. dr. F.C.Palm
Prof. dr. P.C.Schotman
Beoordelingscommissie:
Prof. dr. J.-P.Urbain(voorzitter)
Prof. dr. L.Bauwens (Universit´e catholique deLouvain)
Prof. dr. A.A.J.Pelsser
IthanktheMaastrichtResearchSchoolofEconomicsofTechnologyandOrganizations
(METEOR), The Network for Studies on Pensions, Aging and Retirement (Netspar)
and the Nederlandse Organisatie voor Wetenschappelijk Onderzoek (NWO) for finan-
cial support.
Tomy parents,my brotherandSuzan

Acknowledgements
ThepastyearsasaPhDstudenthavebeensomeofthebestyearsofmylife. Ilearned
a lot - from econometrics and finance to academic writing and presenting - met many
interesting people along the way and lived in interesting cities such as Stockholm,
Boston and - of course - Mestreech. Theresearch process was a long, challenging, but
ultimatelyrewardingprocess. ItwasajourneythatIcouldnothavemadewithoutthe
supportofthefollowing people.
Firstly,IwouldliketothankmyPhDsupervisors,PeterSchotmanandFranzPalm.
Peter and Franz, thank you for all the freedom you gave me in formulating my own
ideasandsolvingmyownproblems,forthetrustyoushowedinmewhenIwasworking
independently and for the support you gave me throughout the process. Franz, you
taughtmehowtotakethehelicopterview,howtoclearly motivateallmychoices and
how to always keep the reader in mind. Peter, you challenged me to think out-of-the-
box,toconfrontmy research with very different(your)approaches andtokeep things
sophisticatedly simple.
A next word of gratitude goes to the members of my assessment committee Jean-
Pierre Urbain, Antoon Pelsser and Luc Bauwens. Jean-Pierre, I would like to thank
you as well for some important early career advice. I would also like to express my
sincerethankstomyhostsatrespectivelySIFRandHarvard,PerStro¨mbergandJohn
Campbell.
Next, I would like to thank my friends and colleagues at the Finance and KE
departmentsofMaastrichtUniversity. Bas,thankyouformanyyearsoffriendshipand
support. I am happy that you are my paranymph. Thies, Daniel, Simone, Daniela
and Kathrin, thank you for all the good times we had during and after office hours.
Hopefully, when you read this, we have finally been to Cologne and Berlin. Francien,
i
C´ecile, Carina, Els, Karin en Hayd´ee, thank you for the support with administrative
duties,certainly inthelastphaseofmy PhDafter IleftMaastricht.
Mijn grootste dank gaat uit naar mijn familie. Pap, mam en Ron, bedankt voor
alle liefde en steun gedurende mijn leven. Ron, ik ben er trots op dat we beiden een
PhD doen en dat je mijn paranymph bent. Suzan, het is onmogelijk je slechts in een
paarwoordentebedanken. Heelveeldankvooraljesteun,liefdeenonvoorwaardelijk
geloof inmijnkunnengedurendedelaatste jaren. Dankje!
Breda, March 2011
ii
Contents
List of Figures vii
List of Tables xi
1 Introduction 1
1.1 Strategic assetallocation: Theeffect ofuncertainty onportfoliochoice . 3
1.2 Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 Firm Characteristics, Industry, Horizon and Time Effects, in the
Cross-Section of Expected Stock Returns 9
2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 PanelModel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2.1 Specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2.2 Cross-sectional dependence . . . . . . . . . . . . . . . . . . . . . 15
2.2.3 Industryeffects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2.4 Estimation of β . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2.4.1 Standardpanelmodel . . . . . . . . . . . . . . . . . . . 18
2.2.4.2 Panel withCommonFactors . . . . . . . . . . . . . . . 21
2.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.4 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.4.1 Univariatesorts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.4.2 Multivariate regressions . . . . . . . . . . . . . . . . . . . . . . . 30
2.5 Portfolio Management Implications . . . . . . . . . . . . . . . . . . . . . 33
2.6 Individualeffects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.7 Alternative factor specifications . . . . . . . . . . . . . . . . . . . . . . . 40
2.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
iii