Return Predictability and Strategic Asset Allocation (A study examining return predictability on the Swedish market and strategic asset allocation of the Swedish buffer pension funds.)

Detta är en C-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: The purpose of this paper is to examine whether Swedish macro-economic variables can predict domestic excess stock and bond return. The paper examines what effects the short-term rate, maturity yield spread and dividend yield have on the aforementioned returns. We also investigate if the Swedish buffer pension funds (AP1, AP2, AP3 and AP4) incorporate these macro-variables into their strategic asset allocation decisions. Previous financial literature suggests that certain macro-variables can predict excess returns, but the conclusions vary. Furthermore, fund managers' ability to incorporate information from macro-variables in a way coherent with conventional literature is also debated. The results from this thesis is that a widening yield spread significantly predicts excess stock return positively. We also conclude that the buffer pension funds incorporate return predictive macro-variables (mainly short-term rate) into their strategic asset allocation. However, the funds do not necessarily incorporate the information in coherence with our findings.

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