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Benchmark selection and performance

Published online by Cambridge University Press:  12 November 2019

Dirk Broeders  and
Leo de Haan
Dirk Broeders*
Affiliation:
De Nederlandsche Bank, Amsterdam, The Netherlands Maastricht University, Maastricht, The Netherlands
Leo de Haan
Affiliation:
De Nederlandsche Bank, Amsterdam, The Netherlands
*
*Corresponding author. Email: [email protected]
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Abstract

Using regulatory data free of self-reporting bias for 2007–16, we decompose investment returns of 455 Dutch pension funds according to their key investment decisions, i.e., asset allocation, market timing and security selection. In extension to existing papers, we also assess the impact of benchmark selection. Over time, asset allocation explains 39% of the variation of returns, whereas benchmark selection, timing and selection explain 11%, 9% and 16%, respectively. Across pension funds, asset allocation explains on average only 19% of the variation in pension fund returns. Benchmark selection dominates this by explaining 33% of cross-sectional returns. We relate the choice for a specific benchmark to investment, risk and style preferences.

Keywords

Asset allocationbenchmark selectioninvestment performancepension fundsG11G23
Type
Article
Information
Journal of Pension Economics & Finance , Volume 19 , Issue 4 , October 2020 , pp. 511 - 531
Copyright
Copyright © Cambridge University Press 2019

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