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Modelling pension fund asset allocation in the UK: An empirical analysis - Volume 2

Sibanda, W. (2004). Modelling pension fund asset allocation in the UK: An empirical analysis - Volume 2. (Unpublished Doctoral thesis, City, University of London)


In this thesis I examine UK pension fund asset allocation and stock selection processes, with the main aim of identifying portfolio bias determinants and particularly to investigate excessive home asset, home equity and large-cap investment. The second motive is to analyse the management structure influence on the above phenomena. The third and final motive is to explore for any significance of differences in the financial characteristics between the fund invested stocks and those they do not disclose investing in. The research reflects on risk, portfolio monitoring capabilities, costs and sentimentality; traits that impact on investment attractiveness. The overconfidence premium imbedded within the popular stocks reduces potential returns.

Such portfolio construction practices are interesting for various reasons. First, extensive home bias has been comprehensively documented. It is also widely reported that while funds concentrate in large fund managers, stock selection is large-cap biased. It is also widely acknowledged that diversification eliminates risk and enhances return and that intensely held stocks under-perform. In this study, I use data of about 2000 UK pension funds and analyse the asset allocation of each fund over the period 1994 to 2000. At the aggregate level, I find significant UK bias, dominated by extreme large-cap UK equity investment. I find slightly significant differences between the financial characteristics of fund invested and stocks in which they do not disclose investing. However, I doubt whether the bias levels enjoyed by the former are warranted. I therefore, hypothesize that fund asset allocation and stock selection processes are not entirely driven by portfolio efficiency requirements in the Modem Portfolio Theory context.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Bayes Business School Doctoral Theses
Bayes Business School > Finance
Doctoral Theses
[thumbnail of Sibanda thesis 2004 Vol 2 PDF-A.pdf]
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