Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

We develop a dynamic portfolio-choice model with illiquid alternative assets to analyze conditions under which the "Endowment Model," used by some large institutional investors such as university endowments, does or does not work. The alternative asset has a lock-up, but can be voluntarily liquidated at any time at a cost. Quantitatively, our model's results match the average level and cross-sectional variation of university endowment funds' spending and asset allocation decisions. We show that asset allocations and spending crucially depend on the alternative asset's expected excess return, risk unspanned by public equity, and investors' preferences for inter-temporal spending smoothing.

Zonder onderwerpscode: economie

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Charitable donations are an important revenue source for many institutions of higher education. We explore how donations respond to economic and financial market shocks, accounting for both supply and demand channels through which these shocks operate. In panel data with fixed effects to control for unobservable differences across universities, we find that overall donations to higher education – and especially capital donations for university endowments or for buildings– are positively and significantly correlated with the average income and house values in the state where the university is located (supply effects). We also find that when a university suffers a negative endowment shock that is large relative to its operating budget, donations increase (demand effects). This is especially true for donations earmarked for current use. We conclude by discussing the importance of understanding how donations respond to economic shocks for effective financial risk management by colleges and universities.

Zonder onderwerpscode: economie

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

We explore the relation between probability weighting and household portfolio underdiversification in a representative household survey, using custom-designed incentivized lotteries. On average, people display Inverse-S shaped probability weighting, overweighting the small probabilities of tail events. As theory predicts, our Inverse-S measure is positively associated with portfolio underdiversification, which results in significant Sharpe ratio losses. We match respondents' individual stock holdings to CRSP data and find that people with higher Inverse-S tend to pick stocks with positive skewness and hold positively-skewed equity portfolios. We show that these choices reflect preferences rather than probability unsophistication or limited financial knowledge.

Zonder onderwerpscode: economie