The Comparative Value of Institutional Asset Allocation Recommendations: A Comprehensive Study and Direct Analysis

• Other Authors: Prati, Robert S. (authoraut)
• Format: Others
• Language: English; English
• Published: Florida State University
• Subjects: Finance; Management
• Online Access: http://purl.flvc.org/fsu/fd/FSU_migr_etd-0428

Strategists at the largest financial institutions have, for years, offered asset allocation advice to their clients. Given the size of these firms and the trillions of investment dollars they influence, the value of this active asset allocation advice (if any) should be of great interest to researchers and investors alike. Using unique survey data beginning in November 1996 with nearly 6,000 observed asset allocation recommendations, I examine strategic and tactical asset allocation advice as emanated from a set of the largest financial institutions. First, to establish a general perspective and allow for strategic comparison, I create and present passive portfolio benchmarks. Two arrays of performance statistics gauged both with raw returns and with Sharpe measures to account for risk characterize such performance over a period matching that of the survey data, as well as over a 50 year period. I next address the active asset allocation advice. By forming pairwise comparisons of measures of portfolio return performance for each individual revision in asset allocation and its previously advised asset allocation, I execute an aggregate analysis both in terms of a raw return competition as well as adjusting for risk. In this manner, I determine whether institutional strategists add value to the portfolios they influence with their advice. Next, I compare the return performance of different firms and strategists to each other, wherever continuous data is available. Finally, again using the continuous data, I contrast the performance of the firms and strategists to the buy-and-hold approaches, or the fixed asset allocation benchmarks. I do this both over the bulk of the survey period, and also with the period split into halves, approximately separating the bull market of the late 1990s and the bear market of the early 21st century. Overall, I conclude that the powerful influence of these, the largest financial institutions and their chief strategists, in directing the flow of assets among asset classes is without merit. As such, my results generally provide counter-evidence of the potential to derive excess returns from market-timing by those most likely to possess such an ability. === A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. === Degree Awarded: Summer Semester, 2004. === Date of Defense: July 12, 2004. === Asset Allocation Recommendations, Strategic Asset Allocation, Active Asset Allocation, Strategists, Institutional Strategists, Strategist Advice, Strategist Recommendations, Strategist Survey, Institutional Strategist Survey, Asset Allocation Advice, Asset Allocation, Bloomberg Survey, Bloomberg Institutional Survey === Includes bibliographical references. === David R. Peterson, Professor Directing Dissertation; Thomas W. Zuehlke, Outside Committee Member; Gary A. Benesh, Committee Member; William A. Christiansen, Committee Member.