University of Groningen Essays on asset allocation and diversification Katzur, Tomasz Marcin

173 Pages·2013·1.45 MB·English

University of Groningen

Essays on asset allocation and diversification
Katzur, Tomasz Marcin
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Essays on Asset Allocation and Diversification
TomaszMarcinKatzur
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Essays on Asset Allocation and Diversification
Proefschrift
terverkrijgingvanhetdoctoraatinde
EconomieenBedrijfskunde
aandeRijksuniversiteitGroningen
opgezagvande
RectorMagnificus,dr.E.Sterken,
inhetopenbaarteverdedigenop
donderdag13juni2013
om11.00uur
door
TomaszMarcinKatzur
geborenop28februari1983
teBydgoszcz,Polen
Promotores: Prof.dr.B.W.Lensink
Prof.dr.L.Spierdijk
Beoordelingscommissie: Prof.dr.R.H.Koning
Prof.dr.R.Wessels
Prof.dr.S.Gangopadhyay
Acknowledgements
Estmodusinrebus,suntcertideniquefines,quosultracitraquenequitconsistererectum.
Horace
I honestly admit that I have never read a Ph.D. thesis before starting to write
my own. Therefore I recall well that, as the first copies of graduating colleagues’
thesesweredeliveredtomypigeon-hole,Iwasbemusedbytheelaborateacknow-
ledgementsectionstheycontained.Havingembarkedratherlight-heartedlyonthis
voyagebyhastilysendingaresearchproposalfromanantiquatedPCinaParisian
Internet cafe, I was not quite aware that it would require ‘enduring support’ or
involve‘profoundgratitude’,tonamejusttworecurrentphrases.
SixyearslaterIhaveabetterunderstandingofthesewords.Whilemanyschol-
arshavecomeupwithappealingmetaphorsfortheirpursuits,theonethatcomes
tomymindactuallyhasamilitarybackground.InhistreatiseOnWarthePrussian
general von Clausewitz writes: ‘Der Krieg ist das Gebiet der Ungewißheit: drei Vier-
teile derjenigen Dinge, worauf das Handeln im Krieg gebaut wird, liegen im Nebel einer
mehroderwenigergroßenUngewißheit.’Ithinksomethingsimilarholdsforwritinga
thesis,threequartersbeingasomewhatconservativeestimate.Andevenforthose
accustomed to murky lowlands weather, a lengthy trip through the fog may put
somestrainonbodyandmind.
Letmefirst,then,thankthosewhoweremypilotsthroughthemist.Iamgrate-
fultoRobertLensinkforhisgentleguidance,especiallyattimeswhenIhadgone
quitefarastrayfromtheroadtosuccessfulcompletion.Robertalsomadesurethat
mypreoccupationwithstatisticalmethodsdidnotfullyeclipsetheeconomicinter-
pretationoftheirresults.
IthankLauraSpierdijkforherthoroughinvolvement,andinparticularforthe
effortssheputintothesecondchapterofthisthesis.EachtimeIleftheroffice,Ifelt
Ihadnotonlylearnedsomethingabouteconomicmodelling,butalsohadgained
confidenceastomyideasandtheenthusiasmrequiredtocarrythemout.
I am also very much indebted to the members of the reading committee for
ii
studying the manuscript. I received many comments valuable both from the per-
spective of conceptual clarification and general readability. I would also like to
thank-withoutimplicating-JanJacobs,SiepKroonenbergandSaschadeHaanfor
their help in improving the layout of this thesis. For the latter purpose, the thesis
packagecreatedbyWardRompwasalsoveryhelpful.
To compensate for the somewhat greyish landscapes sketched above, I must
saythatIwasfortunatetosharemyuniversityofficewithbrightandcolourfulin-
dividuals.AlreadyinthefirstweektogetherwithRientsGalema,somecolleagues
camebytojokinglycomplainabouttheloudburstsoflaughteremanatingfromour
office.Wemanagedtokeepthisspiritup,fuellingitbyoccasional,yetnotunevent-
ful, dashes into the Groningen nightlife. I also very much enjoyed the company
of Jacob Bosma, especially his enthusiasm for sharing research ideas and discuss-
ingphilosophicalissues.Thesediscussionswouldtypicallyreachtheirzenithonly
afterBernardBoonstrajoinedin,whichisherebydulynoted.
The regular three ‘o clock meetings at the coffee machine, with Lammertjan
Dam, Peter Dijkstra, Remco van Eijkel, Pim Heijnen, Allard van der Made, Aljar
Meesters,BastiaanOvervestandEelcoZandbergwerenotonlyapleasantdistrac-
tion, but a valuable opportunity to learn first-hand about the vicissitudes of aca-
demicresearch.
Although the University of Groningen provided me with spacious offices all
along, a substantial part of this thesis has been written in a small annex at my
parents’ home, counting less than five square metres. It was in this refuge that I
couldworkincompletetranquillity.OnceIobtainmycovetedVINEXhouse,Iwill
ensuretoconstructoneontopofit.
WhilemyPh.D.journeywasquitedemandingintermsoftime,I’mgladthatI
wasabletoreservesomeofittojoinanumberofother,moreepic,tripsoverthelast
coupleofyears.Diederik,Kris,Jamie,JasperenVincent,here’stoanotherdecade
of‘pilgrimages’!
IamalsothankfultoKarinforbeingaveryunderstandinghousemate,evenif
ourhousingconditionswereinitiallysuboptimal.SincerethanksgoouttoWybren
andRoman,forbeinggreatfriendsIcanalwaysrelyon.
To those I love most I would just like to say, wishing, in the end, to avoid the
superfluous ‘profound gratitude’ and ‘enduring support’, that I realize this thesis
tookitstoll.Ipromisenottowriteanyagain.
TomaszKatzur
Contents
1 Introduction 1
2 Stockreturnsandinflationrisk:economicversusstatisticalevidence 15
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2 Assetallocationframework . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2.1 Notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2.2 Investmentproblem . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2.3 Modelforstockreturnandinflationdynamics . . . . . . . . . 19
2.2.4 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2.5 Inflationriskexposureofstocks . . . . . . . . . . . . . . . . . 22
2.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3.1 Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3.2 Expandingwindow . . . . . . . . . . . . . . . . . . . . . . . . 24
2.3.3 Timingofexpectedinflationandstockreturns . . . . . . . . . 24
2.3.4 Samplestatistics . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.4 Empiricalresults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.4.1 Posteriordistributions . . . . . . . . . . . . . . . . . . . . . . . 27
2.4.2 Optimalstockallocations . . . . . . . . . . . . . . . . . . . . . 30
2.4.3 Horizoneffects . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.4.4 Inflationriskexposureofstocks . . . . . . . . . . . . . . . . . 34
2.4.5 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.A Bayesianestimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.B Meanreversionduetopredictability . . . . . . . . . . . . . . . . . . . 37
2.C Realyielddata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
iv Contents
3 Whoshouldbuylong-termbonds?ThecaseofIndia 39
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2 Institutionalcontext . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2.1 Governmentbondmarket . . . . . . . . . . . . . . . . . . . . . 41
3.2.2 Assetmanagementindustry. . . . . . . . . . . . . . . . . . . . 43
3.3 Modellingthegovernmentbondmarket . . . . . . . . . . . . . . . . . 44
3.3.1 Choiceofeconometricmodel . . . . . . . . . . . . . . . . . . . 44
3.3.2 Nominalbondprices . . . . . . . . . . . . . . . . . . . . . . . . 46
3.3.3 Nominalbonddemand . . . . . . . . . . . . . . . . . . . . . . 48
3.4 Empiricalanalysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.4.1 Dataandsummarystatistics . . . . . . . . . . . . . . . . . . . 51
3.4.2 Risk-averseinvestors:thetrade-offbetweeninterestraterisk
andinflationrisk . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.4.3 Speculative investors: earning the term premium and diver-
sifyingequityholdings. . . . . . . . . . . . . . . . . . . . . . . 58
3.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
4 Internationaldiversificationbenefitsindevelopingeconomies 63
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.2 Themodel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
4.2.1 Assets,returndynamicsandportfolioproblem. . . . . . . . . 66
4.2.2 Solutionmethod . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.2.3 Measuringthegainsfrominvestingabroad . . . . . . . . . . . 69
4.3 Empiricalanalysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4.3.1 Dataandsummarystatistics . . . . . . . . . . . . . . . . . . . 70
4.3.2 VARestimationresults . . . . . . . . . . . . . . . . . . . . . . . 73
4.3.3 Termstructureofrisk . . . . . . . . . . . . . . . . . . . . . . . 80
4.3.4 Allocationtoforeignassetsanddiversificationbenefits . . . . 83
4.3.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
4.A Estimationmethod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
4.B Datasourcesanddataconstruction . . . . . . . . . . . . . . . . . . . . 91
5 Inflation,stockmarketcrashesandassetallocationinthePhilippines 93
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
5.2 FinancialmarketsinthePhilippines . . . . . . . . . . . . . . . . . . . 95
5.2.1 Interestratesandinflation . . . . . . . . . . . . . . . . . . . . . 95
5.2.2 Stockmarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Contents v
5.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.4 Empiricalanalysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.4.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.4.2 Modelselection . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
5.4.3 Estimationresults. . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.4.4 Implicationsforassetallocation . . . . . . . . . . . . . . . . . 107
5.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
5.A Modelselection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
6 Efficientjointliabilitycontractsandguarantorcontractsinmicrofinance 117
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
6.2 Themodel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
6.2.1 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
6.2.2 Loantypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
6.2.3 Thefirst-bestbenchmark . . . . . . . . . . . . . . . . . . . . . 120
6.3 Symmetriccontracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
6.3.1 Reviewoftheanalysisforindependentprojects . . . . . . . . 121
6.3.2 Introducingprojectcorrelation . . . . . . . . . . . . . . . . . . 125
6.3.3 Thefullinformationbenchmarkwithcorrelatedprojects . . . 126
6.4 Guarantorcontracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
6.A Derivationofequation6.6 . . . . . . . . . . . . . . . . . . . . . . . . . 137
7 Conclusion 139
References 144
Samenvatting(SummaryinDutch) 155