Asset allocation efficiency from dynamic and static strategies in underfunded pension funds
This study attempts to conduct a comparative analysis between dynamic and static asset allocation to achieve the long-term target return on asset liability management (ALM). This study conducts asset allocation using the ex ante expected rate of return through the outlook of future economic indicato...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2022-02-01
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| Series: | Seonmul yeongu |
| Subjects: | |
| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JDQS-10-2021-0025/full/pdf?title=asset-allocation-efficiency-from-dynamic-and-static-strategies-in-underfunded-pension-funds |
| _version_ | 1811255286443278336 |
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| author | Chunsuk Park Dong-Soon Kim Kaun Y. Lee |
| author_facet | Chunsuk Park Dong-Soon Kim Kaun Y. Lee |
| author_sort | Chunsuk Park |
| collection | DOAJ |
| description | This study attempts to conduct a comparative analysis between dynamic and static asset allocation to achieve the long-term target return on asset liability management (ALM). This study conducts asset allocation using the ex ante expected rate of return through the outlook of future economic indicators because past economic indicators or realized rate of returns which are used as input data for expected rate of returns in the “building block” method, most adopted by domestic pension funds, does not fully reflect the future economic situation. Vector autoregression is used to estimate and forecast long-term interest rates. Furthermore, it is applied to gross domestic product and consumer price index estimation because it is widely used in financial time series data. Based on asset allocation simulations, this study derived the following insights: first, economic indicator filtering and upper-lower bound computation is needed to reduce the expected return volatility. Second, to reach the ALM goal, more stocks should be allocated than low-yielding assets. Finally, dynamic asset allocation which has been mirroring economic changes actively has a higher annual yield and risk-adjusted return than static asset allocation. |
| first_indexed | 2024-04-12T17:21:36Z |
| format | Article |
| id | doaj.art-524a613237c84c5aab204657d2627995 |
| institution | Directory Open Access Journal |
| issn | 1229-988X 2713-6647 |
| language | English |
| last_indexed | 2024-04-12T17:21:36Z |
| publishDate | 2022-02-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Seonmul yeongu |
| spelling | doaj.art-524a613237c84c5aab204657d26279952022-12-22T03:23:27ZengEmerald PublishingSeonmul yeongu1229-988X2713-66472022-02-0130122210.1108/JDQS-10-2021-0025680035Asset allocation efficiency from dynamic and static strategies in underfunded pension fundsChunsuk Park0Dong-Soon Kim1Kaun Y. Lee2Chung-Ang University, Seoul, Republic of KoreaChung-Ang University, Seoul, Republic of KoreaChung-Ang University, Seoul, Republic of KoreaThis study attempts to conduct a comparative analysis between dynamic and static asset allocation to achieve the long-term target return on asset liability management (ALM). This study conducts asset allocation using the ex ante expected rate of return through the outlook of future economic indicators because past economic indicators or realized rate of returns which are used as input data for expected rate of returns in the “building block” method, most adopted by domestic pension funds, does not fully reflect the future economic situation. Vector autoregression is used to estimate and forecast long-term interest rates. Furthermore, it is applied to gross domestic product and consumer price index estimation because it is widely used in financial time series data. Based on asset allocation simulations, this study derived the following insights: first, economic indicator filtering and upper-lower bound computation is needed to reduce the expected return volatility. Second, to reach the ALM goal, more stocks should be allocated than low-yielding assets. Finally, dynamic asset allocation which has been mirroring economic changes actively has a higher annual yield and risk-adjusted return than static asset allocation.https://www.emerald.com/insight/content/doi/10.1108/JDQS-10-2021-0025/full/pdf?title=asset-allocation-efficiency-from-dynamic-and-static-strategies-in-underfunded-pension-fundsdynamic and static asset allocationshortfall riskexpected rate of return by asset classinput databuilding blocktarget rate of returnvar modelfilteringg110g230 |
| spellingShingle | Chunsuk Park Dong-Soon Kim Kaun Y. Lee Asset allocation efficiency from dynamic and static strategies in underfunded pension funds Seonmul yeongu dynamic and static asset allocation shortfall risk expected rate of return by asset class input data building block target rate of return var model filtering g110 g230 |
| title | Asset allocation efficiency from dynamic and static strategies in underfunded pension funds |
| title_full | Asset allocation efficiency from dynamic and static strategies in underfunded pension funds |
| title_fullStr | Asset allocation efficiency from dynamic and static strategies in underfunded pension funds |
| title_full_unstemmed | Asset allocation efficiency from dynamic and static strategies in underfunded pension funds |
| title_short | Asset allocation efficiency from dynamic and static strategies in underfunded pension funds |
| title_sort | asset allocation efficiency from dynamic and static strategies in underfunded pension funds |
| topic | dynamic and static asset allocation shortfall risk expected rate of return by asset class input data building block target rate of return var model filtering g110 g230 |
| url | https://www.emerald.com/insight/content/doi/10.1108/JDQS-10-2021-0025/full/pdf?title=asset-allocation-efficiency-from-dynamic-and-static-strategies-in-underfunded-pension-funds |
| work_keys_str_mv | AT chunsukpark assetallocationefficiencyfromdynamicandstaticstrategiesinunderfundedpensionfunds AT dongsoonkim assetallocationefficiencyfromdynamicandstaticstrategiesinunderfundedpensionfunds AT kaunylee assetallocationefficiencyfromdynamicandstaticstrategiesinunderfundedpensionfunds |