Long-Term U.S. Infrastructure Returns and Portfolio Selection

31 Pages Posted: 22 Aug 2011 Last revised: 28 Oct 2011

See all articles by Michael Francis Howard

Michael Francis Howard

Griffith University

Robert J. Bianchi

Griffith University

Graham N. Bornholt

Griffith University - Department of Accounting, Finance and Economics

Michael E. Drew

Griffith University

Date Written: October 25, 2011

Abstract

Industry professionals wish to understand the long-term return behaviour and portfolio characteristics of infrastructure investments, however, there is a relatively short history of empirical data. There is also a paucity of research in regards to the application of finance theory and how it relates to infrastructure investments. This research employs a procedure that constructs monthly U.S. infrastructure returns over the long-term from 1927 to 2010. We employ the Carhart (1997) framework and reveal that low market beta and the value risk premia explains U.S. infrastructure returns. The research also finds that some infrastructure indices (ie. the MSCI U.S. Infrastructure index) are undesirable in a portfolio selection framework while others (ie. the MSCI U.S. Broad and Small Utilities indices) exhibit promising return, risk and portfolio diversification benefits. The findings also reveal that U.S. infrastructure index returns suffer from larger extreme left tail-risk over the long-term in comparison to what has been experienced by investors from recent empirical returns. Overall, the findings reveal that the investment merits of U.S. infrastructure are mixed. This research provides a first glimpse of U.S. infrastructure over the long-term and lays the foundation for the assessment of infrastructure in other countries.

Keywords: Infrastructure, portfolio selection, asset pricing, mean variance, conditional-value-at-risk

JEL Classification: G11, G12

Suggested Citation

Howard, Michael Francis and Bianchi, Robert J. and Bornholt, Graham N. and Drew, Michael E., Long-Term U.S. Infrastructure Returns and Portfolio Selection (October 25, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1914055 or http://dx.doi.org/10.2139/ssrn.1914055

Michael Francis Howard (Contact Author)

Griffith University ( email )

Brisbane, Queensland 4111
Australia
0421081276 (Phone)
0755528068 (Fax)

Robert J. Bianchi

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Graham N. Bornholt

Griffith University - Department of Accounting, Finance and Economics ( email )

Gold Coast Campus
Gold Coast QLD, 4222
Australia

Michael E. Drew

Griffith University ( email )

Brisbane, Queensland 4111
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
189
Abstract Views
1,292
rank
159,937
PlumX Metrics