Absence of Value: An Analysis of Investment Allocation Decisions by Institutional Plan Sponsors

Posted: 20 Dec 2009

See all articles by Scott Stewart

Scott Stewart

Cornell SC Johnson College of Business

John Neumann

affiliation not provided to SSRN

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Jeffrey Heisler

Boston University - Department of Finance & Economics

Date Written: December 15, 2009

Abstract

To determine whether the investment decisions of institutional plan sponsors contribute to their asset values, this study used a dataset of 80,000 yearly observations of institutional investment product assets, accounts, and returns for 1984−2007. Results show that plan sponsors may not be acting in their stakeholders’ best interests when they make rebalancing or reallocation decisions. Investment products that receive contributions subsequently underperform products experiencing withdrawals over one, three, and five years. For investment decisions among equity, fixed-income, and balanced products, most of the underperformance can be attributed to product selection. Tests suggest that these results are not attributable to survivorship or other biases. Much like individual investors who switch mutual funds at the wrong time, institutional investors do not appear to create value from their investment decisions.

Keywords: Performance Measurement and Evaluation, Performance Attribution, Manager Selection, Portfolio Management, Asset Allocation, Portfolio Construction, Rebalancing and Implementation

Suggested Citation

Stewart, Scott and Neumann, John and Knittel, Christopher R. and Heisler, Jeffrey, Absence of Value: An Analysis of Investment Allocation Decisions by Institutional Plan Sponsors (December 15, 2009). Financial Analysts Journal, Vol. 65, No. 6, 2009. Available at SSRN: https://ssrn.com/abstract=1523736

Scott Stewart

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

John Neumann

affiliation not provided to SSRN ( email )

Christopher R. Knittel (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey Heisler

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353-4614 (Phone)
(617) 353-6667 (Fax)

HOME PAGE: http://fisher.osu.edu/fin/findir/individual.html?indivID=1484

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