PhD ceremony Mr. T.M. Katzur: Essays on asset allocation and diversification

PhD ceremony: Mr. T.M. Katzur, 11.00 uur, Academiegebouw, Broerstraat 5, Groningen

Dissertation: Essays on asset allocation and diversification

Promotor(s): prof. B.W. Lensink, prof. L. Spierdijk

Faculty: Economics

The financial performance of an asset manager is determined, to a large extent, by the long-term allocation to cash, stocks and bonds. This thesis analyzes the risk-return tradeoff for these asset classes, and its link to inflation and interest rate fluctuations. The focus is on allocation decisions for emerging market investors. Over the last two decades assets under management by emerging market pension funds, mutual funds and insurance companies increased dramatically. Their success depends on the ability to deliver a stable real-term income stream to their beneficiaries. We address several questions related to this objective by means of empirical case studies. Is the risk premium on local currency bonds sufficient to compensate for inflation risk? Is there evidence that emerging market stocks are safer in the long run? What are the diversification benefits from investing abroad? To what extent does the long-term allocation depend on current financial market conditions?