Can Institutional Investors Outperform the Market? Evidence from the Israeli Market

35 Pages Posted: 30 Jan 2015

See all articles by Yoram Eden

Yoram Eden

College of Management (Israel)

Ido Kallir

Ono Academic College

Date Written: January 28, 2015

Abstract

In this paper, we show that institutional investors, like pension funds, may outperform standard market portfolio benchmarks. These results agree with contemporary research on pension funds’ performance. Yet, the current research does not explain why do pension funds are able to outperform the benchmark while mutual funds cannot.

We use an Israeli database. The Israeli regulator compels pension funds to file comprehensive monthly reports. This creates a unique database of data about Israeli pension funds. Employing this database, we find that funds’ outperformance is significantly mitigated when we apply APB (Active Peer Benchmark), which was not used in previous works. We are also able to correlate the residual alpha (the risk adjusted abnormal return) to illiquidity factors and question what the hidden risks behind pension funds outperformance may be.

Keywords: Pension funds, Performance, Alpha, Mimicking portfolio

JEL Classification: G11,G15, G22, G23

Suggested Citation

Eden, Yoram and Kallir, Ido, Can Institutional Investors Outperform the Market? Evidence from the Israeli Market (January 28, 2015). Available at SSRN: https://ssrn.com/abstract=2557396 or http://dx.doi.org/10.2139/ssrn.2557396

Yoram Eden

College of Management (Israel) ( email )

7 Yitzhak Rabin Boulevard
P. O. Box 9141
Rishon LeZion, 75190
Israel

Ido Kallir (Contact Author)

Ono Academic College ( email )

Tzahal Street 104
Kiryat Ono, 55000
Israel

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