Asset Allocation and Bad Habits

13 Pages Posted: 17 Sep 2014

See all articles by Andrew Ang

Andrew Ang

BlackRock, Inc

Amit Goyal

University of Lausanne; Swiss Finance Institute

Antti Ilmanen

AQR Capital Management

Date Written: September 17, 2014


This article documents the “bad habits” of investors in asset allocation practices. Whereas financial markets exhibit momentum over multi-month horizons but more reversion to the mean over multi-year horizons, many investors act like momentum investors even at these longer horizons. Both these patterns are well known anecdotally but have not been well documented statistically, especially together. This article therefore addresses two empirical questions. First, How do funds reallocate based on past returns? The authors provide direct evidence using the CEM Benchmarking data on pension fund target allocations over a 22-year period. Second, What are momentum/reversal patterns in financial markets returns? Evidence is provided using more than a century of data. Merging the findings from the two data sets provides evidence consistent with the premise that investors chase returns over multi-year horizons, which is likely to hurt their long-run performance. However, the statistical evidence on pro-cyclical multi-year asset allocations and multi-year mean reversion patterns in asset-class returns is on the borderline of statistical significance.

Keywords: Asset Allocation, Mean Reversion, Momentum Investing, Pension Fund, Return Attribution

Suggested Citation

Ang, Andrew and Goyal, Amit and Ilmanen, Antti S., Asset Allocation and Bad Habits (September 17, 2014). Rotman International Journal of Pension Management, Vol. 7, No. 2, 2014, Columbia Business School Research Paper No. 14-42, Available at SSRN: or

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Amit Goyal

University of Lausanne ( email )

Batiment Extranef 226
Lausanne, Vaud CH-1015
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)


Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Antti S. Ilmanen

AQR Capital Management ( email )

United Kingdom
+447887475184 (Phone)

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