Asset Allocation Dynamics and Pension Fund Performance

Using a data set on more than 300 UK pension funds' asset holdings, this paper provides a systematic investigation of the performance of managed portfolios across multiple asset classes. We find evidence of slow mean reversion in the funds' portfolio weights towards a common, time-varying strategic asset allocation. We also find surprisingly little cross-sectional variation in the average ex post returns to strategic asset allocation, market timing and security selection components. Strategic asset allocation accounts for most of the time-series variation in portfolio returns, while market timing and asset selection appear to have been far less important.

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