Portfolio Choice with Endogenous Donations - Modeling University Endowments

59 Pages Posted: 2 Nov 2013 Last revised: 3 Jul 2023

See all articles by Georg Cejnek

Georg Cejnek

ZZ Vermögensverwaltung GmbH; Engelbert Dockner Stiftung

Richard Franz

Vienna University of Economics and Business

Neal Stoughton

Vienna University of Economics and Business; University of Waterloo

Date Written: June 1, 2023

Abstract

University endowments differ from other institutions in that donation income and spending rates are of equal importance to asset allocation decisions. Our paper develops an optimal endowment framework with endogenous donations income through a feedback dependence based on investment performance. We investigate both substitution and wealth effects due to incomplete markets and nonlinear donation risk. Looking at empirical data on actual US endowment practices, we validate our donations processes. Large endowments take riskier positions. However, this effect weakens with increasing donation risk, documenting another form of the substitution effect empirically. Spending rates are time varying and determined by relative investment opportunities and the corresponding interaction with endowment size.

Keywords: endowments, asset allocation, spending, donations

JEL Classification: G11, G23

Suggested Citation

Cejnek, Georg and Franz, Richard and Stoughton, Neal M., Portfolio Choice with Endogenous Donations - Modeling University Endowments (June 1, 2023). Available at SSRN: https://ssrn.com/abstract=2348048 or http://dx.doi.org/10.2139/ssrn.2348048

Georg Cejnek (Contact Author)

ZZ Vermögensverwaltung GmbH ( email )

Coburgbastei 4, Top5
Vienna, 1010
Austria
+43151818934 (Phone)

Engelbert Dockner Stiftung ( email )

Vienna
Austria

Richard Franz

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria
+43 1 51818 545 (Phone)

Neal M. Stoughton

Vienna University of Economics and Business ( email )

Austria

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

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