Do the Rich Know Better? – University Endowment Return Inequality Revisited

American Economic Journal: Economic Policy, March 2016

44 Pages Posted: 15 May 2016

See all articles by Tuo Chen

Tuo Chen

Columbia University, Graduate School of Arts and Sciences, Department of Economics, Students

Date Written: March 1, 2016

Abstract

This paper revisits capital return inequality across university endowments. It combines university-level data on endowment size, investment returns, and portfolio allocations into a unified dataset. Using panel data regression, we replicate Piketty (2014)’s finding of a strong impact of size on investment return. Everything else the same, the biggest endowment has a capital return 8% higher than the smallest endowment. How- ever, after adjusting for risk using Sharpe Ratios, the strong positive correlation turns negligible or even negative. This result suggests that the higher return of bigger endowments can be attributed to risk compensation rather than to an informational premium.

Keywords: Capital Return Inequality, Benchmark Return, Sharpe Ratio, Information Channel, Risk Channel

JEL Classification: I20, D30, G11

Suggested Citation

Chen, Tuo, Do the Rich Know Better? – University Endowment Return Inequality Revisited (March 1, 2016). American Economic Journal: Economic Policy, March 2016. Available at SSRN: https://ssrn.com/abstract=2778255

Tuo Chen (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics, Students ( email )

New York, NY 10027
United States

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