The Performance of Global Portfolio Recommendations

52 Pages Posted: 4 Dec 2003

See all articles by Mary M. Bange

Mary M. Bange

affiliation not provided to SSRN

Kenneth Khang

University of Wisconsin - Milwaukee

Thomas W. Miller

Mississippi State University - College of Business; Saint Louis University - Department of Finance

Date Written: March 7, 2003

Abstract

In this paper, we report the first empirical tests concerning the performance of international investment strategies recommended by a panel of investment houses from 1982 through 2001. The data for this study comes from surveys published in the Financial Report, a confidential newsletter purchased by The Economist Newspaper, Ltd., in 1989. In the surveys, the investment houses recommended strategic asset allocations among equity, bonds, and cash, as well as tactical equity allocations across six countries.

The performance of the recommended portfolio weights are compared to several pre-specified static benchmark portfolios. We also compare the returns of the recommended portfolio weights to a set of 1,000 returns that are generated by randomly shuffling the recommended weights. As a final measurement, we test whether the investment houses had superior information after adjusting for a set of conditioning variables.

In this sample, it appears that the investment houses had little skill at recommending tactical equity allocations across countries. However, it does appear that the investment houses, as a group, had some skill concerning strategic asset allocations. We find that the market crash of October 1987 may have had a profound effect on the strategic portfolio performance. Before the Crash, the investment houses, as a group, exhibit skill. That is, they outperform several static and dynamic benchmarks. After the Crash, it appears that the investment houses overweighted in bonds for a lengthly interval, which may have led to inferior performance.

Suggested Citation

Bange, Mary M. and Khang, Kenneth and Miller, Thomas William, The Performance of Global Portfolio Recommendations (March 7, 2003). AFA 2004 San Diego Meetings. Available at SSRN: https://ssrn.com/abstract=467822 or http://dx.doi.org/10.2139/ssrn.467822

Mary M. Bange

affiliation not provided to SSRN

No Address Available

Kenneth Khang

University of Wisconsin - Milwaukee

Bolton Hall 802
3210 N. Maryland Ave.
Milwaukee, WI 53211
United States

Thomas William Miller (Contact Author)

Mississippi State University - College of Business ( email )

Mississippi State, MS 39762-0964
United States

Saint Louis University - Department of Finance ( email )

3674 Lindell Blvd
Saint Louis, MO 63108-3397
United States
314-977-3851 (Phone)
314-977-1479 (Fax)

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