PhD ceremony Mr. Z. Umar: Empirical studies on long-term investing

PhD ceremony: Mr. Z. Umar, 14.30 uur, Academiegebouw, Broerstraat 5, Groningen

Dissertation: Empirical studies on long-term investing

Promotor(s): prof. L. Spierdijk

Faculty: Economics

One of the main objectives of an investor is to ensure a steady and stable stream of real portfolio returns. Ideally, an investment portfolio should be immunized against adverse events affecting the real return. The realization of this objective is even more important for long-term investors, such as pension funds, insurance companies and mutual funds. Their portfolios are exposed to additional risks due to their long investment horizons. This thesis analyzes several investment problems that are of particular importance to long-term investors. Chapters 2 and 3 investigate the inflation-hedging capacity of US equity, fixed-income securities and commodity futures. We define an asset’s inflation-hedging ability as the extent to which the asset is able to reduce a portfolio’s real-return variance due to inflation. We analyze the hedging ability of the aforementioned assets across various dimensions, including time, (sub-)sectors and maturity. Chapters 4 and 5 analyze the multi-period portfolio choice problem of an emerging market investor. This investor holds an asset-mix of stocks, bonds and money-market instruments and has the objective to maximize her expected utility evaluated in terminal real wealth. The use of real terminal wealth in the objective function requires immunization against all risk factors that impact on real returns. We conduct an empirical analysis of the short-term and long-term demand for stocks and bonds in various emerging market economies along with the US. We distinguish between local investors (with returns in the local currency) and international investors (with returns in US dollars).