Performance Evaluation of Balanced Pension Plans

Transcription

1 Pfomanc Evaluaion of Balancd Pnsion Plans Laua Andu and Launs Swinkls ERIM REPORT SERIES RESEARCH IN MANAGEMENT ERIM Rpo Sis fnc numb ERS F&A Publicaion Ocob 2009 Numb of pags 32 Psisn pap URL addss cosponding auho Addss Easmus Rsach Insiu of Managmn (ERIM) RSM Easmus Univsiy / Easmus School of Economics Easmus Univsii Rodam P.O.Box DR Rodam Th Nhlands Phon: Fax: info@im.u.nl Inn: Bibliogaphic daa and classificaions of all h ERIM pos a also availabl on h ERIM wbsi:

2 ERASMUS RESEARCH INSTITUTE OF MANAGEMENT REPORT SERIES RESEARCH IN MANAGEMENT ABSTRACT AND KEYWORDS Absac F Kywods Availabiliy This pap xamins h abiliy of balancd pnsion plan manags o succssfully im h quiy and bond mak and slc h appopia asss wihin hs maks. In od o valua boh mak iming abiliis in hs balancd pnsion plans w xnd h adiional quiy mak iming modls o also accoun fo bond mak iming. As fa as w know w a among h fis o apply his mulifaco iming modl o invsiga quiy and bond mak iming simulanously. This pfomanc valuaion has bn conducd on wo sampls of Spanish balancd pnsion plans on wih Euo Zon and on wih Wold invsmn focus. This allows us o dcompos manags skills in h componns: slciviy quiy mak iming and bond mak iming. Ou findings suggs ha h avag sock picking abiliy of pnsion plans is posiiv. Wold schms nd o hav posiiv bond iming skills whil Euo Zon pnsion plans a on avag no abl o im quiy o bond maks. balancd pnsion plans mak iming pfomanc valuaion sock picking Th ERIM Rpo Sis is disibud hough h following plafoms: Acadmic Rposioy a Easmus Univsiy (DEAR) DEAR ERIM Sis Poal Social Scinc Rsach Nwok (SSRN) SSRN ERIM Sis Wbpag Rsach Paps in Economics (REPEC) REPEC ERIM Sis Wbpag Classificaions Th lconic vsions of h paps in h ERIM po Sis conain bibliogaphic madaa by h following classificaion sysms: Libay of Congss Classificaion (LCC) LCC Wbpag Jounal of Economic Liau (JEL) JEL Wbpag ACM Compuing Classificaion Sysm CCS Wbpag Inspc Classificaion schm (ICS) ICS Wbpag

3 Pfomanc Evaluaion of Balancd Pnsion Plans 1 Laua Andu Univsiy of Zaagoza landu@uniza.s Launs Swinkls Easmus Rsach Insiu of Managmn Robco Quaniaiv Sagis lswinkls@fw.u.nl Ocob W would lik o hank José Luis Sao fo valuabl commns and DGA (CONAID) and CAI fo h funds povidd hough h sach pogamm CAI Euop. Lag pa of his pap was win whn Laua Andu was visiing Easmus School of Economics in Rodam. Th viws xpssd in his pap do no ncssaily psn hos of Robco o any of is subsidiais. 1

4 Pfomanc Evaluaion of Balancd Pnsion Plans Absac: This pap xamins h abiliy of balancd pnsion plan manags o succssfully im h quiy and bond mak and slc h appopia asss wihin hs maks. In od o valua boh mak iming abiliis in hs balancd pnsion plans w xnd h adiional quiy mak iming modls o also accoun fo bond mak iming. As fa as w know w a among h fis o apply his mulifaco iming modl o invsiga quiy and bond mak iming simulanously. This pfomanc valuaion has bn conducd on wo sampls of Spanish balancd pnsion plans on wih Euo Zon and on wih Wold invsmn focus. This allows us o dcompos manags skills in h componns: slciviy quiy mak iming and bond mak iming. Ou findings suggs ha h avag sock picking abiliy of pnsion plans is posiiv. Wold schms nd o hav posiiv bond iming skills whil Euo Zon pnsion plans a on avag no abl o im quiy o bond maks. Ky wods: Balancd Pnsion Plans Mak Timing Pfomanc Evaluaion Sockpicking. JEL Cod: G11 2

5 1. INTRODUCTION Th invsmn pfomanc of h pofolios is ofn masud by hi avag un ov a cain holding piod. Alhough hs avag uns can b qui dispsd i is no always cla wha causs hs diffncs. This dispsion is usually aibud o h good acions akn by manags. Ths dcisions can ih div fom h manag s abiliy o choos scuiis slciviy o sock-picking skill (alpha) o fom h pdicion abiliy abou h mak uns mak iming skill (ba) 2. Manags can acivly dcid o al h xposu o h mak accoding o h publicly availabl infomaion o o hi psonal xpcaions abou fuu mak uns. In ha way invsos could bnfi fom aciv allocaion owads bull maks and away fom dclining maks. Thfo infomaion abou h dynamics of h pofolio s mak xposu as wll as h associad addiional xpcd un is vy valuabl fo individual invsos. Th liau on mak iming focuss mosly on quiy muual funds. 3 As a consqunc h adiional iming modls analys funds as if hy a composd of only socks and Tasuy bills and valua h pfomanc by focusing on h choic bwn socks and cash and ignoing h pa of h pofolio invsd in bonds. This holding in bonds can b significan fo som yps of muual funds such as fixd- 2 Som auhos such as Binson al. (1986) and Binson al. (1991) also sa ha a high popoion of h vaiabiliy of h uns obaind by h pofolios ov im is dmind by h vaiaion of h sagic policy. 3 Mos of h mpiical vidnc suggss ha fund manags a no capabl o im h quiy mak; s. g. Tyno and Mazuy (1966) and Fson and Schad (1996) among ohs. A noabl xcpion is h sudy caid ou by Bolln and Buss (2001) who find posiiv mak iming basd on daily infomaion. Wms (2000) Glassman and Riddick (2006) and Jiang al. (2007) also find iming abiliy analysing pofolio composiion. Mo cnly Swinkls and Tjong-A-Tjo (2007) sngh h vidnc of Bolln and Buss (2001) in favou of mak iming by analysing no only mak iming bu syl iming abiliis on siz valuaion and momnum. 3

6 incom funds and hybid funds. Howv lil is known abou h manag skills of hs pofolios. Com (2006) and Rodiguz (2008) us a mulifaco xnsion of Tyno and Mazuy (1966) modl o xamin boh quiy and bond iming skills. Thy focus hi anion on impoving h masumn of h iming abiliy of hybid muual funds by compaing h suls of h sock mak iming cofficins of h adiional modl and hos obaind by a mulifaco modl ha includs bond indics and a quadaic bond m. Spcifically h abovmniond sudis find ha h inclusion of bond indics and bond iming vaiabls in h modl lads o diffn conclusions abou h sock mak iming pfomanc. Howv hy do no invsiga bond mak iming abiliy as a spaa souc of invsmn pfomanc. W fl his could b an impoan pfomanc div and analys his in mo dail. This lack of mpiical sudis analysing h iming abiliy on balancd funds lads us o focus on impoving h masumn of h iming abiliis of hs pofolios. In addiion w mus highligh ha ov h las 10 yas h has bn an impoan gowh in h numb of Spanish balancd pnsion plans. Ov 80 quiy balancd plans w in xisnc in 1998 whil h numb has gown o almos 200 in Th numb of invsos and h ass und managmn by balancd pnsion plans has also xpincd a considabl incasd (3.35% and 2.76% spcivly). Thfo w conibu o his lin of sach by invsigaing h quiy and bond mak iming of Spanish balancd pnsion plans by applying a novl mulifaco pfomanc valuaion modl. In addiion ou suls povid ou-ofsampl vidnc fo conclusions dawn on h U.S. hybid muual fund mak. 4

7 Th a som sudis ha hav invsigad h xisnc of h mak iming abiliy by analysing Spanish muual funds. Spcifically h sudis conducd by Fuz al. (2006) and Fuz and Vagas (2007) conclud h absnc of quiy mak iming abiliy of Spanish muual fund manags. Maallin (2006) dscibs h impoanc of h igh bnchmaks whn invsigaing mak iming skills fo Spanish muual funds. 4 Finally Doncl al (2009) invsiga long un psisnc in Spanish quiy balancd and bond muual funds. In spi of pvious sudis of Spanish muual funds h is a lack of mpiical vidnc abou h pfomanc of Spanish pnsion plans. Thus ou pap aims o xnd his sand of liau o invsiga h pfomanc of balancd pnsion plans in Spain. Th main pupos of his pap is o fill his gap of mpiical conclusions abou h invsmn skills of balancd pnsion plan manags using a novl pfomanc aibuion famwok. In paicula w analys h abiliis of Spanish balancd pnsion plan manags. Givn ha hs invsmn vhicls hold mainly a combinaion of socks bonds and cash in hi pofolios adiional mak iming modls a no suiabl. Fo ha ason h main conibuion of his pap is h masumn of h quiy and bond mak iming in balancd pofolios a scacly xplod invsmn vocaion. This issu is addssd by simaing h iming cofficins fom a mulifaco vsion of h Tyno and Mazuy (1966) modl. 5 As Com (2006) ssss h mpiical liau has no fully xploid mulifaco iming modl mhodologis whn i coms o xamining balancd pofolios. Ou sach can b sn as an xnsion of h xising iming modl and ou-of-sampl 4 Oh ffcs ha could hamp fund pfomanc such as liquidiy nds a discussd in his pap. S also. g. Wah (1995) Edln (1999) and Páso and Sambaugh (2002) among ohs. 5 No ha his mulifaco modl is simila o ha applid in Com (2006) and Rodiguz (2008). 5

8 vidnc of h us of his yp of mulifaco iming modls fo h U.S. hybid muual fund mak. Finally i is impoan o mphasiz h lvanc of his lin of sach fo vaious asons. Fom an acadmic pspciv appopia masuing of h iming abiliy may hav implicaions fo h fficin mak hypohsis. On h oh hand fom an invso s pspciv idnifying supio manags is an impoan objciv. Concly h suls obaind by Bony al. (2009) whn analysing h iming of bond funds confim ha in spi of h pvs iming abiliy bwn cash and bonds and acoss bonds of vaious mauiis invsos valu funds fo h divsificaion bnfis hy povid wihin h invsos ovall pofolio. On h oh hand h iming abiliis could influnc on how invsos assign hi savings among h diffn invsmn vhicls availabl and consqunly i could ncouag h invsmn in piva pnsion schms. Ou findings suggs ha pnsion plans a on avag no abl o add valu by iming quiy o bond maks. Th majoiy of Euo Zon and Wold pnsion plans show ngaiv quiy mak iming skills. Th Euo Zon pnsion plans sm o hav ngaiv bond mak skill as wll whas Wold pnsion plans show slighly posiiv bond mak iming skill. Th sock picking abiliy of pnsion plans is on avag posiiv wih 1.09% p ya fo Euo Zon pnsion plans and 1.81% p ya fo Wold pnsion plans. Howv hs a goss un figus and onc managmn fs a subacd h slciviy skill is ducd o zo as wll. Th maind of h pap is oganisd as follows. Scion 2 povids a dscipion of h Spanish pnsion mak along wih h daa usd in ou sach. Scion 3 dscibs h pfomanc valuaion modls and h mpiical suls obaind. Finally conclusions a dawn in Scion 4. 6

9 2. DESCRIPTION OF THE SPANISH PENSION MARKET AND DATA 2.1 Th Spanish pnsion mak Th Spanish pnsion sysm is sucud in h pillas as in h majoiy of h Euopan counis. In his sns h fis wo pillas a adminisd by h Sa on a pay-as-you go (PAYG) basis whas h hid pilla is a volunay fundd sysm ha gahs occupaional and psonal pnsion schms. In Dcmb 2007 almos million of mo han 10 million of invsos w invsd in piva pnsion schms psning mo han 6% of h Spanish family savings. Ou sach focuss on psonal pnsion plans sinc hs a much mo impoan han occupaional pnsion plans in h Spanish mak. A h nd of 2007 psonal pnsion plans psn mo han 62% of h asss und managmn and mo han 80% of invsos. This fau conass wih oh pnsion indusis lik h U.K and Th Nhlands wh occupaional pnsion plans a h mos impoan cagoy. 2.2 Fund sampl Mo spcifically ou focus lis on h pfomanc valuaion of Spanish balancd psonal pnsion plans givn ha hs plans a mo likly o sablish mak iming by changing hi mak xposus du o hi flxibl invsmn goal. In paicula w analys all Spanish balancd psonal pnsion plans ha invs in Euo Zon and Wold quiis ov h piod Apil 2000 o Dcmb 2007 accoding o h Spanish Associaion of Collciv Invsmn and Pnsion Funds (Invco). In od o b classifid as a balancd pnsion schm h pofolios mus b commid o mainaining bwn 30% and 75% of hi asss in quiis accoding o h 7

10 classificaions povidd by Invco. Monhly uns of Spanish balancd pnsion plans a obaind fom Invco daabas. Ou final wo sampls includ 94 and 45 pofolios spcivly. Th only quimn fo a pnsion plan o b includd in h sudy is ha h plan suvivs fo a minimum of h yas as a balancd pnsion schm. 6 Onc h h-ya ciion is aaind h daas dos no suff fom suvivoship bias sinc i gahs vy pnsion plan commcialisd in Spain duing ha piod. I should b nod ha alhough nih pnsion plan sampl is subjc o suvivoship bias boh ponially suff fom look-ahad bias. In fac as mniond by Com (2006) and Bony al. (2009) among ohs som look-ahad bias is inhn in ss of mak iming abiliy wh a minimum suvival piod is ncssay o obain obus simaions. Tabl 1 povids dscipiv saisics of h balancd pnsion plans analysd. 7 Spcifically h abl lis a andom numb assignd o ach pnsion plan and h ang of pod pofolio wighs pod ov h im piod analysd ( ). Ths wighs a basd on annual pnsion fund pos by h Spanish Associaion of Collciv Invsmn and Pnsion Funds (Invco). Fom his abl w can conclud ha ass allocaion bwn quiy maks bonds and cash play an impoan ol in h pofolios of Spanish balancd pnsion plans. This quis us o us mhods byond h adiional pfomanc valuaion modls in od o cocly analys h manag skill. 8 6 W hav xcludd on pofolio classifid as Euo Zon balancd by h Spanish Associaion of Collciv Invsmn and Pnsion Funds sinc is infomaion dos no confom o his cagoy. On h oh hand only 21 and 32 balancd plans invsing in Euo Zon and Wold quiis do no fulfil h h-ya piod quid o b includd in ou sampls. 7 No ha h pofolio wighs invsd in som pnsion plans a idnical givn ha wighs pod in Tabl 1 cospond o h pnsion funds in which h plans a includd. Pnsion funds can ncompass sval pnsion plans of diffn invsmn vocaions. Fo ha ason h quiy wighs of som pofolios do no ach h minimum xposu o quiis sablishd by Invco. 8 Th aciv managmn of pnsion funds is also sad in hi invsmn policis. Fo xampl Fund 11 fom h sampl of Wold Funds sas: Th pofolio invs in quiy asss wih h aim of 8

11 2.3 Indx daa Fo h implmnaion of mak iming modls daa on sval mak indics is also ndd. In his spc using daa fom Mogan Sanly Capial Innaional- Baa and h Bank of Spain 9 w hav collcd infomaion abou h monhly uns of a s of bnchmaks ha psn h main holdings in quiis and fixdincom asss of Spanish balancd pofolios. In od o dmin in which bnchmaks ou pofolios a havily invsd w hav followd h un-basd syl analysis poposd by Shap (1992). Baing in mind h quimns sablishd by Shap s mhod abou h xhausivnss xclusivnss and indpndnc of h indics and basd on h sudy of Andu al. (2008) 10 w hav considd h MSCI EMU Goss Run indx and h MSCI Wold Goss Run indx as bnchmaks psnaiv of h quiy holding in ach sampl 11 5-ya Spanish Govnmn Db as bnchmak psnaiv of fixd-incom and 1-day Spanish Tasuy Bill Rpos as bnchmak psnaiv of cash. having a cnal xposu of 60% and a maximum of 75% in Wold quiy asss bing h pofolio acivly managd accoding o mak xpcaions. 9 S hp:// fo quiy bnchmak infomaion and hp:// fo fixdincom and cash indxs. 10 This pap analyss h ass allocaion of Spanish quiy pnsion plans considing only wo bnchmaks h quiy and cash indx. Howv givn ha w analys balancd pofolios i is absoluly ncssay o dfin anoh bnchmak psnaiv of h bond holding. In his sns w hav xamind diffn bnchmaks wih diffn mauiis finding ha h pofolios analysd a havily invsd in Public Db wih a mauiy of 5 yas. 11 Boh indics a dnominad in Euo Cuncy. 9

12 Tabl 1 Sampl of Spanish Balancd Pnsion Plans Panl A Socks Bonds Cash Socks Bonds Cash No annual wighs pod No annual wighs pod No annual wighs pod No annual wighs pod No annual wighs pod No annual wighs pod No annual wighs pod

13 Coninud Panl B Socks Bonds Cash Socks Bonds Cash No annual wighs pod Tabl 2 povids dscipiv saisics of h goss uns and volailiy (sandad dviaion) of h pnsion plans and bnchmaks usd in h sudy. Fom his abl w can dc som diffncs bwn h sampl of Spanish balancd pnsion plans ha invs in Euo Zon quiis and hos invsing in Wold quiis. In paicula w can obsv ha fo h ni sampl piod h Spanish pnsion plans invsing in Euo Zon undpfom h mak. Th qually-wighd pofolio has an annual goss un of 2.99% compad o h quiy fixd-incom and cash bnchmak uns of 3.32% 4.95% and 3.11% spcivly. Howv h Wold qually-wighd pofolio oupfoms h quiy mak. 11

14 Tabl 2. Summay of dscipiv saisics W psn som dscipiv saisics fo ou sampls of 94 and 45 Spanish balancd pnsion plans invsing in Euo Zon and Wold quiis and fo h bnchmaks usd. Ths daa is pod considing h ni sampl piod Apil 2000 o Dcmb 2007 and wo diffn piods ha un fom Apil 2000 o Dcmb 2003 and fom Januay 2004 o Dcmb 2007 spcivly. Th avag goss un and volailiy (sandad dviaion) a annualizd whas h minimum and maximum uns a monhly uns. To calcula h avag valu of ach vaiabl fis h man of h im sis of ach plan was compud and hn h coss-scional man was calculad. Pnsion Plans Avag Minimum Maximum Volailiy Euo Zon Pnsion Plans Equally-Wighd Pofolio (2000/4-2007/12) 2.99% -6.95% 5.64% 8.24% Equally-Wighd Pofolio (2000/4-2003/12) -4.37% -6.95% 5.64% 10.21% Equally-Wighd Pofolio (2004/1-2007/12) 10.37% -2.31% 3.34% 5.18% Wold Pnsion Plans Equally-Wighd Pofolio (2000/4-2007/12) 2.03% -5.59% 3.41% 7.31% Equally-Wighd Pofolio (2000/4-2003/12) -5.01% -5.59% 3.41% 8.84% Equally-Wighd Pofolio (2004/1-2007/12) 9.06% -3.22% 3.21% 4.85% Bnchmaks Avag Minimum Maximum Volailiy MSCI Emu (2000/4-2007/12) 3.32% % 13.82% 17.26% MSCI Emu (2000/4-2003/12) % % 13.82% 22.34% MSCI Emu (2004/1-2007/12) 18.02% -4.49% 5.96% 9.19% MSCI Wold (2000/4-2007/12) -1.03% % 7.66% 14.58% MSCI Wold (2000/4-2003/12) % % 7.66% 18.74% MSCI Wold (2004/1-2007/12) 10.02% -5.42% 6.49% 8.23% 5-Ya Spanish Govnmn Db (2000/4-2007/12) 4.95% -1.47% 1.99% 2.70% 5-Ya Spanish Govnmn Db (2000/4-2003/12) 6.72% -1.47% 1.99% 3.11% 5-Ya Spanish Govnmn Db (2004/1-2007/12) 3.31% -0.94% 1.39% 2.20% 1-day Spanish Tasuy Bill Rpos (2000/4-2007/12) 3.11% 0.15% 0.44% 0.28% 1-day Spanish Tasuy Bill Rpos (2000/4-2003/12) 3.57% 0.15% 0.44% 0.28% 1-day Spanish Tasuy Bill Rpos (2004/1-2007/12) 2.68% 0.15% 0.36% 0.22% Tabl 2 also shows ha h fis half of h im piod is a ba mak bing h man un of h quiy mak of % and % spcivly whas h scond half of h piod gahs a bull mak. I is also makabl h high volailiy duing h ba piod 22.34% and 18.74% as opposd o 9.19% and 8.23% in h bull mak. Finally w highligh ha pnsion plans volailiy masud by h sandad dviaion is bwn h volailiy of h quiy and bond bnchmak as xpcd givn ha ou sampls consis of balancd pnsion schms. 12

15 To s Shap s (1992) modl in ou sampls and o dmin h avag xposu of Spanish balancd plans o h diffn indics w ca an quallywighd pofolio by avaging all fund uns duing a givn monh. Rsuls fom h simaion a shown in Tabl 3. Tabl 3. Pofolio suls of Shap s (1992) syl analysis. Th op ow pos h figus of Spanish balancd pnsion plans invsing in Euo Zon quiis whas h boom ow pos h figus fo Spanish balancd pnsion plans invsing in Wold quiis duing h ni piod analysd Each ow conains h suls of h un-basd syl analyss poposd by Shap (1992) fo h qually-wighd pofolio. β 0 β 1 (Equiis) β 2 (Fixd-Incom) β 3 (Cash) R 2 Αdj. R 2 Euo Zon quiis % 89.00% Wold quiis % 90.25% Basd on h suls of Tabl 3 w can onc mo conclud h impoanc of boh quiis and bonds in ou sampl. A slighly high adjusd R 2 is obsvd whn analyzing Wold quiis as wll as a high figu of h valu addd by aciv manags in compaison o ha obaind by Euo zon manags PERFORMANCE EVALUATION MODELS AND EMPIRICAL RESULTS 3.1 Pfomanc masud by Alpha Th financial liau on h pfomanc of collciv invsmn pofolios usually povids vidnc of ngaiv alphas on avag onc adjusd fo fs (s.g. Jnsn 1968). In od o s his finding in ou sampl of balancd psonal pnsion plans w assum ha h monhly pnsion plan uns can b chaacizd by a 12 In Appndix 2 w show ha h influnc of a look-ahad bias is small. Thfo h quimn of a minimum im piod o b includd in h sampl dos no diso ou findings. 13

16 gnalizaion of h singl faco modl poposd by Jnsn (1968). Th modl is xpssd as follows: = α (1) E B p β p β p b ε p p wh p dnos h xcss un ov h isk-f a 13 of h pnsion plan p in piod ( b) dnos h xcss un of h quiy mak (bond mak) ov h sam piod β E (β B ) dnos h snsiiviy of h pofolio un o h sock mak (bond mak) movmns α p dnos h slciviy un of h manag of pofolio p and ε p dnos h o m of h modl. Th main issu is o s whh his modl ffcivly psns h uns of balancd pnsion plans. To chck h ffcivnss of his modl w sa ou invsigaion by simaing quaion 1 fo ach of h 94 and 45 pnsion plans fom ou sampls in od o do infncs fo individual plans. 14 Summay saisics of h simaion suls by using h odinay las squa mhod a shown in Tabl 4. Sval findings a obsvd fom his abl. Fis h modl poposd is appopia sinc i xplains 73% and 72% of h vaiaion in uns whn using individual pnsion plans as indicad by h high R 2 cofficin obaind. Scond h suls show ha h avag quiy mak xposu is 0.47 and 0.50 spcivly. This sul is consisn wih h limis sad by h invsmn vocaion. Thid h xposu o h bond mak is also significan bing on avag 0.25 and Thfo h suls suggs h impoanc of modlling h bond poion of h balancd plans. This is a finding simila o ha obaind by pvious sudis xamining balancd pofolios such as Com (2006) and Rodiguz (2008) day Spanish Tasuy Bill Rpos is h bnchmak usd as a isk-f a. 14 In Appndix 2 w show h qually-wighd pofolio wihou look-ahad bias and obsv ha suls a qualiaivly h sam. 14

17 Tabl 4. Esimaion suls of quiy and bond xposus Th simaion suls of Equaion 1 a displayd in his abl wh h alpha paam is xpssd in annual ms. Th abl is dividd in wo panls. Panl A pos h suls fo h sampl of pnsion plans invsing in Euo Zon Equiis whas Panl B pos h suls fo hos pofolios invsing in Wold Equiis. Moov ach panl conains wo scions. Th upp sid of ach panl shows h summay suls obaind whn analysing pnsion plans individually whas h boom sid of h panl shows h suls obaind whn analysing qually-wighd pofolios. Th hoskdasiciy and auocolaion consisn sandad o s as dscibd by Nwy and Ws (1987) has bn usd in od o calcula h significanc lvls. Panl A: Euo Zon plans Annual α β E β B R 2 Avag -0.58% Mdian -1.04% Posiiv of which significan a 5% Ngaiv of which significan a 5% Equally-wighd pofolio -0.61% p-valu (0.51) (0.00) (0.14) Panl B: Wold plans Annual α β E β B R 2 Avag 1.46% Mdian 0.92% Posiiv of which significan a 5% Ngaiv of which significan a 5% Equally-wighd pofolio 0.61% p-valu (0.58) (0.00) (0.04) Howv i is also impoan o noic h diffnc bwn h avag alpha achivd by Spanish balancd pnsion plans dpnding on h invsmn vocaion. As xpcd by h dscipiv saisics of Tabl 2 h avag alpha of Euo Zon pofolios is ngaiv (-0.58%) whil his paam in Wold pnsion plans is posiiv (1.46%). Th diffnc in alphas bwn h wo sampls can also b obsvd in Figu 1 wh h disibuion of h sock-picking skill of h pnsion plans in ou sampls is displayd. Ovall h figu associad o Euo Zon plans indicas ha 15

18 h slciviy skill is concnad in h ngaiv pa of h figu wih 68 ou of 94 plans having a ngaiv sima fo alpha. Fuhmo of h 17 significan alphas 13 a ngaiv. On h conay h sock picking skill of Wold plans is concnad in h posiiv pa of h figu wih 30 ou of 45 plans having a posiiv sima. Moov no ngaiv and saisically significan alphas a obsvd. Pvious sudis finding ngaiv alphas inpd hm as an indicao of poo pfomanc. Fo ha ason fom ou suls basd on a gnalizaion of h singl faco modl poposd by Jnsn (1968) w can conclud ha h Spanish pnsion manags invsing in Euo Zon quiis a no adding valu o h passiv mak indx as opposd o pnsion manags invsing in Wold quiis. Moov h dispsion in h manag slciviy indicas h isk fo invsos fom picking h igh o wong manag all oh hings qual. Figu 1 Hisogam of slciviy skill: Th gnalizaion of h singl faco modl poposd by Jnsn (1968) This figu xhibis h hisogam of h slciviy skill accoding o h simaion of Equaion 1 fo ach pnsion plan. Th lf sid of h figu shows h hisogam fo hos pnsion plans invsing in Euo Zon Equiis whas h hisogam of h pofolios invsing in Wold quiis is displayd in h igh sid of h figu <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 0 <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 16

19 3.2 Pfomanc considing mak iming skills Th slciviy masu (alpha) fom quaion 1 dos no ak ino accoun h ponial mak iming ha Spanish pnsion manags can hav by moving in and ou h mak o buying socks wih high and low ba dpnding on h mak uns. Thfo w go a sp fuh by analysing h iming abiliis considing a mulifaco xnsion of h adiional valuaion modl poposd by Tyno and Mazuy (1966). In paicula his modl valuas h laion bwn a fund pofolio s snsiiviy cofficin o h mak pofolio and h acual un on h mak. A posiiv laionship indicas ha h fund manag cocly focass quiy mak movmns and adjuss h pofolio composiion accodingly. In oh wods h fund manag posssss skill in iming h mak whn h laion bwn h mak snsiiviy and h alizd mak un is significanly posiiv. This adiional modl analyzs funds as whh hy a composd of only socks and Tasuy Bills and valuas h pfomanc by focusing on h choic bwn socks and cash. As a sul h modl ignos h poion of h pofolios of balancd pnsion plans ha is invsd in bonds alhough i is wll-known ha o poply masu h iming skill a modl should includ all asss in which h pofolio invss and h iming cofficins fo ach of hs asss. In his sns Lhmann and Mods (1987) povid h foundaion fo a mulifaco xnsion of h quadaic gssion appoach. Thy illusa ha a mulifaco xnsion of h Tyno and Mazuy modl would includ quadaic ms and coss-ms of all h asss. Du o h impoanc of h quiy and bond xposus and h vaiabiliy of hos xposus ov im in ou wo sampls of balancd pnsion plans as 17

20 dmonsad in Tabls 1 and 3 w xnd h adiional pfomanc valuaion modl o chck boh yps of iming skills quiy and bond mak iming. Howv w xclud h coss-ms in h ins of mainaining a pasimonious iming modl. This analysis supposs an oiginal and innovaiv appoach sinc h majoiy of h sudis in h financial liau only focus hi anion on h quiy mak iming. Som xcpions as w hav pviously mniond a h invsigaions caid ou by Com (2006) Rodiguz (2008) and Swinkls and Tjong-a-Tjo (2008). Th fis sudis apply a mulifaco vsion of h Tyno and Mazuy modl whas h la xamins h syl iming along wih h quiy mak iming. Using h wo-faco modl of quaion 1 w can div an appopia mulifaco vsion of Tyno and Mazuy (1966) modl o masu h iming abiliis of Spanish balancd pnsion plans. This mulifaco modl can b dscibd as follows 15 : E B 2 2 p p β β b γ ) γ ( b ) = α ( ε (2) p E B wh α p h slciviy skill E B β ( β ) is h avag xposu o h quiy (bond) mak γ E (γ B ) is h cofficin of h quiy (bond) mak iming and ε p is h o m. Th simaion suls fom h mulifaco vsion of Tyno and Mazuy (1966) mak iming modl a summaizd in Tabl 5. Panls A and B show ha h majoiy of h pnsion plans psn a posiiv alpha. Spcifically in h Euo Zon sampl a oal of 64 ou of 94 pnsion plans psn a posiiv alpha whil in h Wold sampl his figu is 35 ou of 45. Taking ino accoun h lvl of 15 Appndix 1 shows a mo complx spcificaion of h mulifaco vsion of Tyno and Mazuy (1966) modl obaining simila suls. 18

21 significanc w obsv a cla diffnc bwn boh daass sinc only a 6.4% of h Spanish balancd plans invsing in Euo Zon quiis has a significan posiiv sock picking abiliy whil his pcnag is o 24.4% in h wold sampl. Ths diffncs in h alphas fo boh sampls a consisn wih h findings in Figu 1. Tabl 5. Rsuls of Timing and Slciviy: Th mulifaco xnsion of Tyno and Mazuy Modl Th abl is dividd in wo panls: Panl A and Panl B. Panl A pos h suls of h mulifaco xnsion of Tyno and Mazuy (1966) modl as xpssd in quaion 2 as wll as h disibuion of h disibuion of h diffn paams fo ou sampl of Spanish balancd psonal pnsion schms invsing in Euo Zon quiis ov h piod whas Panl B pos h suls of pnsion schms invsing in Wold quiis. Moov ach panl conains wo scions. Th upp sid of ach panl shows h summay suls obaind whn analysing pnsion plans individually whas h boom sid of h panl shows h suls obaind whn analysing qually-wighd pofolios. Th hoskdasiciy and auocolaion consisn sandad o s as dscibd by Nwy and Ws (1987) has bn usd in od o calcula h significanc lvls. Panl A: Euo Zon Pnsion Plans α β E γ E β B γ Β Avag 1.09% Mdian 1.53% Posiiv of which significan a 5% Ngaiv of which significan a 5% Equally-wighd pofolio 1.07% p-valus (0.49) Panl B: Wold Pnsion Plans α β E γ E β B γ Β Avag 1.81% Mdian 1.39% Posiiv of which significan a 5% Ngaiv of which significan a 5% Equally-wighd pofolio 0.61% p-valus (0.77) (0.00) (0.11) (0.04) (0.04) 19

22 Rgading h iming cofficins in Panl A an avag ngaiv cofficin fo boh quiy and bond mak iming can b obsvd whn focusing h anion on individual suls. Spcifically 4 pnsion plans show a significanly ngaiv quiy iming abiliy. Ths figus a vn wos whn w chck h bond mak iming wh h a 29 pofolios (31% of h sampl) showing a significanly ngaiv bond iming skill. This ngaiv and saisically significan bond iming abiliy pod by Euo zon pnsion plans individually is infocd by h aggga suls. On h oh hand suls of Panl B show an avag ngaiv quiy iming cofficin bing saisically significan in 16 pofolios (36% of h sampl). I is also impoan o noic ha his paam is mo ngaiv in h wold daas han in Euo Zon pnsion plans. Howv unlik h sul of Euo Zon pnsion plans wold pofolios psn an avag posiiv bond iming paam bing posiiv saisically significan in 8 pnsion plans as wll as fo h qually-wighd pofolio. 16 Figu 2 displays h disibuion of h slciviy skill of h pnsion schms includd in ou wo sampls. Ovall his figu indicas ha h slciviy skill is concnad in h posiiv pa of h figu gadlss of h invsmn vocaion xamind. Howv i is impoan o mmb ha goss uns hav bn usd in ou pap. In his spc h avag posiiv alphas a 1.09% and 1.81% p ya whil h avag managmn and cusodial f fo hs pofolios is 1.90% fo Euo Zon pofolios and 1.80% fo wold pofolios. I would b mping o conclud ha hs pnsion plans a hfo no adding any valu o h Spanish pnsion invsos. Howv on should ba ino mind ha h indics usd in his 16 In Appndix 2 w show h qually-wighd pofolio wihou look-ahad bias and obsv ha suls a qualiaivly h sam. 20

23 sach a no availabl o individual invsos a zo coss. 17 Bony al. (2009) also jusifid h suvival of h funds of hi sampl dspi hi ngaiv pfomanc du o h valu invsos plac on h pofolio divsificaion bnfis. Figu 2. Hisogam of h slciviy skill: Th mulifaco xnsion of Tyno and Mazuy Modl This figu xhibis h hisogam of h slciviy skill whn h mulifaco xnsion of h Tyno and Mazuy modl is applid. Th lf sid of h figu shows h hisogam fo hos pnsion plans invsing in Euo Zon Equiis whas h hisogam of h pofolios invsing in Wold quiis is displayd in h igh sid of h figu <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 0 <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% I is also impoan o noic ha h considaion of h iming skills has lad o diffn conclusions abou h slciviy abiliy of Euo Zon pnsion manags. W povid vidnc ha h mak iming modl offs mo infomaion abou h managmn skills han h augmnd vsion of h Jnsn (1968) modl sinc h la dos no ak ino accoun oh abiliis diff fom sock picking. In his sns h usual ngaiv alphas povidd by h Jnsn quaion a mainly du o h lack of mak iming abiliis. Nowihsanding w dc sock picking skills as can b obsvd fom h posiiv alpha cofficins in h mak iming modl. Figus 3 and 4 display h disibuion of h quiy and bond iming un of ou wo sampls. Thus w can dcompos h un addd o subacd by h h 17 Passiv indx funds o Exchang Tadd Funds sm o undpfom h indics usd by 0.50%- 1.00% af all coss a akn ino accoun. 21

24 diffn managmn skills. In his sns Figu 5 xhibis h disibuion of h oal un povidd by h h diffn skills: slciviy quiy iming and bond iming. Figu 3. Hisogam of h quiy iming un: Th mulifaco xnsion of Tyno and Mazuy Modl This figu xhibis h hisogam of h quiy iming un whn h mulifaco xnsion of h Tyno and Mazuy modl is applid. Th lf sid of h figu shows h hisogam fo hos pnsion plans invsing in Euo Zon Equiis whas h hisogam of h pofolios invsing in Wold quiis is displayd in h igh sid of h figu <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 0 <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% Figu 4. Hisogam of h bond iming un: Th mulifaco xnsion of Tyno and Mazuy Modl. This figu xhibis h hisogam of h bond iming un whn h mulifaco xnsion of h Tyno and Mazuy modl is applid. Th lf sid of h figu shows h hisogam fo hos pnsion plans invsing in Euo Zon Equiis whas h hisogam of h pofolios invsing in Wold quiis is displayd in h igh sid of h figu <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 0 <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 22

25 Bfo concluding h pap l us show an xampl o illusa h ponial magniuds of h diffn managmn skills. Suppos a pnsion schm ha psns h avag paams of h Euo Zon sampl: α = 0.09% p monh β E = 0.47 β B = 0.27 γ E = and γ B = bing h avag xcss un of h quiy mak 0.5% p monh and h avag xcss un of h bond mak 0.1% p monh as w can obsvd in h sampl. Th un of h diffn managmn skills of his pnsion plan quals: Managmn skills un= 0.09% (-0.08*0.25%) (-21.07*0.01%) = 0.09% (-0.02%) (-0.21%) = -0.14% In his xampl h mos impoan faco in h un subacd by h manag is h ngaiv bond mak iming. Th managmn skills subac a monhly un of -0.14% bfo considing h managmn and cusodial fs. Now suppos h avag paams of h Wold sampl: α=0.15% p monh β E =0.50 β B =0.17 γ E =-0.68 and γ B =6.12. Th un of h diffn managmn skills of his pnsion plan quals: Managmn skills un= 0.15% (-0.68*0.25%) (6.12*0.01%) = 0.15% (-0.17%) (0.06%) = 0.04% In his scond xampl w can s ha h managmn skills addd a un of 0.04% and w a abl o chck ha h mos impoan managmn skill is h sock picking. Fom Figu 5 w obsv ha fo h Euo Zon pnsion plans h oal skill povidd by h pnsion fund manag is mosly ngaiv. Th manag skill of Wold pnsion plans is also mosly ngaiv bu w also obsv ha 10 pnsion plans hav a managmn skill abov 3% p annum. Basd on hs suls w conclud ha h managmn skill in Wold pnsion plans is high han ha in Euo Zon pnsion 23

26 plans. This could b lad o h lag oppouniy s fo hs manags as hy may invs in global quiy and bonds maks. Figu 5. Hisogam of h oal un addd by h diffn managmn skills: Th mulifaco xnsion of Tyno and Mazuy Modl. This figu xhibis h hisogam of h oal un addd by h diffn managmn skills (slciviy quiy iming and bond iming) whn h mulifaco xnsion of h Tyno and Mazuy modl is applid. Th lf sid of h figu shows h hisogam fo hos pnsion plans invsing in Euo Zon Equiis whas h hisogam of h pofolios invsing in Wold quiis is displayd in h igh sid of h figu <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 0 <-2% <-1% <-0.5% <0% <0.5% <1% <2% <3% >3% 4. CONCLUSIONS This pap mpiically xamins h managmn skills of Spanish balancd pnsion plans ha invs in Euo Zon and Wold quiis duing h piod In od o achiv his goal w hav usd a mulifaco xnsion of Tyno and Mazuy (1966) modl givn ha adiional mak iming modls a no suiabl o analys balancd pofolios. As fa as w know w a among h fis o apply his novl mulifaco modl spcificaion which allows us o dcompos h pnsion fund manag s skills in h diffn componns: slciviy quiy mak iming and bond mak iming. Ou mpiical suls suggs ha h sock picking abiliy of pnsion plans is on avag posiiv wih 1.1% and 1.8% p annum fo Euo Zon and Wold pnsion plans spcivly. Sinc his analysis is basd on goss uns managmn fs of 24

27 appoximaly 1.8% p annum sill hav o b subacd fo al-lif invso uns. Spanish pnsion plans a on avag no abl o im quiy maks alhough posiiv bond iming is obsvd in Wold pofolios. Pvious liau povids vidnc ha h us of daily daa impovs dcing iming abiliy ha w documn considing monhly infomaion. Thfo a nx sp fo fuu sach may b o compa ou suls o hos obaind by using daily daa bu cunly his daa is no availabl. 25

28 REFERENCES Andu L. Fuz L. Vicn L Th Impoanc of ass allocaion in Spanish quiy pnsion plans. Jounal of Pnsion Economics and Financ Fohcoming. Bolln N.P.B. and Buss J.A On h iming abiliy of muual fund manags. Th Jounal of Financ 56(3) Bony V. Com G. and Klly L Timing h invsmn gad scuiis mak: Evidnc fom high qualiy bond funds. Jounal of Empiical Financ Binson G.P. Hood L.R. and Bbow G.L Dminans of pofolio pfomanc. Financial Analyss Jounal 42(4) Binson G.P. Sing B.D. and Bbow G.L Dminans of pofolio pfomanc II: An upda. Financial Analyss Jounal 47(3) Com G Hybid muual funds and mak iming pfomanc. Th Jounal of Businss 79(2) Doncl L.M. Gau-Cals P. and Sainz J On h long-m bhavio of muual fund uns Quaniaiv Financ 9(6) Edln R Invso flows and h assssd pfomanc of opn-ndd muual funds. Jounal of Financial Economics Fuz L. and Vagas M A b on passiv invsmn sagis. Th Innaional Jounal of Applid Economics and Financ 1(2)

29 Fuz L. Vagas M. and Sao J.L Evaluaion of pfomanc and condiional infomaion: Th cas of spanish muual funds. Applid Financial Economics 16(11) Fson W.E. and Schad R.W Masuing fund sagy and pfomanc in changing conomic condiions. Th Jounal of Financ 51(2) Glassman D.A. and Riddick L.A Mak iming by global fund manags. Jounal of Innaional Mony and Financ 25(7) Jnsn M Th pfomanc of muual funds in h piod Jounal of Financ 23(2) Jiang G.J. Yao T. and Yu T Do muual funds im h mak? vidnc fom pofolio holdings. Jounal of Financial Economics 86(3) Lhmann B.N. and Mods D.M Muual fund pfomanc valuaion: A compaison of bnchmaks and bnchmak compaisons. Th Jounal of Financ 42(2) Maallín J. C Sasonaliy mak iming and pfomanc: Amongs bnchmaks and muual fund valuaion. Jounal of Businss Financ and Accouning 33(9-10) Nwy W.K. and Ws K.D A simpl posiiv smi-dfini hoskdasiciy and auocolaion consisn covaianc maix. Economica ( ) 55(3) Páso L. and Sambaugh R Muual fund pfomanc and smingly unlad asss. Jounal of Financial Economics 63(3)

30 Rodíguz J Mak iming: A global ndavo. Jounal of Innaional Financial Maks Insiuions and Mony Fohcoming. Shap W.F Ass allocaion: Managmn syl and pfomanc masumn. Jounal of Pofolio Managmn 18(2) Swinkls L. and Tjong-A-Tjo L Can muual funds im invsmn syls? Jounal of Ass Managmn 8(2) Tyno J.L. and Mazuy K Can muual funds ouguss h mak? Havad Businss Rviw Wah V. A Aggga muual fund flows and scuiy uns. Jounal of Financial Economics Wms R. and Moskowiz T.J Muual fund pfomanc: An mpiical dcomposiion ino sock-picking aln syl ansacions coss and xpnss. Th Jounal of Financ 55(4)

31 29 APPENDIX 1: Anoh mulifaco vsion of Tyno and Mazuy (1966) modl Alhough no pod mpiical suls a viually idnical whn w considd anoh mo complx spcificaion of h mulifacoial vsion of h modl poposd by Tyno and Mazuy (1966). In his nw spcificaion w on a sp fuh including no only h bond iming o h adiional modls bu also h choic bwn socks and bonds apa fom h choic bwn socks and cash. This alnaiv mulifacoial modl can b divd as follows: p b p B p p p E 1 1 ε β β α = (4) As w hav pviously mniond his modl sas ha h mak xposu is linaly lad o h xcss alizd uns of h mak. Thfo h dynamic pocsss fo h quiy and bond mak xposus a dscibd by h following xpssions: ) ( ) ( = b f R R R R E E η γ γ β β (5) ) ( ) ( = b f b R R R R B B η γ γ β β (6) Rplacing quaions 5 and 6 ino quaion 4 w obain h alnaiv mulifacoial vsion of Tyno and Mazuy (1966). p b b b b b p B E p ) * ( ) * ( ) ( ) ( ) ( ) ( ε γ γ γ γ γ γ β β α = (7) This xpssion can also b win as: p b b b B E p p ) * )( ( ) )( ( ) )( ( ε γ γ γ γ γ γ β β α = (8)

32 APPENDIX 2: Evaluaion of h impac of look-ahad bias This appndix conains compaisons of h sampl of qually-wighd pnsion plans mniond in h main x (wih look-ahad bias) wih h sampl of quallywighd pnsion plans wihou look-ahad bias. Tabl A2.1: Compaison of Tabl 3 wih h sampl wihou look-ahad bias Th abl is dividd ino wo panls. Panl A pos h figus of Spanish balancd pnsion plans invsing in Euo Zon quiis whas Panl B pos h figus fo Spanish balancd pnsion plans invsing in Wold quiis duing h ni piod analysd Each panl conains h suls of h un-basd syl analyss poposd by Shap (1992) fo h qually-wighd pofolio including all h pnsion plans xising in ach piod (h unbiasd qually-wighd pofolio) as wll as h qually-wighd pofolio including hos pnsion plans wih a las 36 obsvaions (h qually-wighd pofolio wih look-ahad bias). Panl A: Euo Zon quiis β 0 β 1 (MSCI Emu) β 2 (Fixd-Incom) β 3 (Cash) R 2 Αdj. R 2 Unbiasd Pofolio % 88.90% Pofolio wih Look-Ahad bias Panl B: Wold quiis % 89.00% β 0 β 1 (MSCI Wold) β 2 (Fixd-Incom) β 3 (Cash) R 2 Αdj. R 2 Unbiasd Pofolio % 90.04% Pofolio wih Look-Ahad bias % 90.25% 30

33 Tabl A2.2: Compaison of suls of Tabl 4 wih h sampl wihou look-ahad bias Th simaion suls of Equaion 1 a displayd in his abl wh h alpha paam is xpssd in annual ms. Th abl is dividd in wo panls. Panl A pos h suls fo h sampl of pnsion plans invsing in Euo Zon Equiis whas Panl B pos h suls fo hos pofolios invsing in Wold Equiis. Moov ach panl conains wo scions. Th upp sid of ach panl shows h summay suls obaind whn analysing pnsion plans individually whas h boom sid of h panl shows h suls obaind whn analysing qually-wighd pofolios. Th hoskdasiciy and auocolaion consisn sandad o s as dscibd by Nwy and Ws (1987) has bn usd in od o calcula h significanc lvls. Panl A: Euo Zon Pnsion Plans Annual α β E β B R 2 Unbiasd pofolio -0.59% p-valu (0.51) (0.00) (0.14) Look-ahad biasd pofolio -0.61% p-valu (0.51) (0.00) (0.14) Panl B: Wold Pnsion Plans Annual α β E β B R 2 Unbiasd pofolio 0.61% p-valu (0.55) (0.00) (0.03) Look-ahad biasd pofolio 0.61% p-valu (0.58) (0.00) (0.04) 31

34 Tabl A2.3: Compaison of suls of Tabl 5 wih h sampl wihou look-ahad bias Th abl is dividd in wo panls: Panl A and Panl B. Panl A pos h suls of h mulifaco xnsion of Tyno and Mazuy (1966) modl as xpssd in quaion 2 as wll as h disibuion of h disibuion of h diffn paams fo ou sampl of Spanish balancd psonal pnsion schms invsing in Euo Zon quiis ov h piod whas Panl B pos h suls of pnsion schms invsing in Wold quiis. Moov ach panl conains wo scions. Th upp sid of ach panl shows h summay suls obaind whn analysing pnsion plans individually whas h boom sid of h panl shows h suls obaind whn analysing qually-wighd pofolios. Th hoskdasiciy and auocolaion consisn sandad o s as dscibd by Nwy and Ws (1987) has bn usd in od o calcula h significanc lvls. Panl A: Euo Zon Pnsion plans α β E γ E β B γ Β Unbiasd pofolio 1.06% p-valus (0.49) (0.00) (0.88) (0.06) (0.01) Look-ahad biasd pofolio 1.07% p-valus (0.49) Panl B: Wold Pnsion Plans α β E γ E β B γ Β Unbiasd pofolio 0.61% p-valus (0.62) (0.00) (0.24) (0.03) (0.15) Look-ahad biasd pofolio 0.61% p-valus (0.77) (0.00) (0.11) (0.04) (0.04) 32