TITLE:
A Dynamic Model of Strategic Allocation of Sovereign Wealth Funds
AUTHORS:
Kouakou Thiédjé Gaudens-Omer
KEYWORDS:
Sovereign Wealth Funds, Portfolio Management, Dynamic Portfolio Selection Model, Lifestyle Funds
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.1,
February
1,
2019
ABSTRACT: This article draws on stylized facts to build a
dynamic portfolio allocation model of sovereign wealth funds (SWF). We show
that a traditional dynamic Merton allocation model allows for the stylized
evidence that, on the one hand, the shares of monetary assets in such funds
grow with the risk aversion of the state-investor in time, and on
the other hand, these funds include the presence or absence of hedge funds
correlated to the financial situation. One weakness of this model is its
prediction of a lower risk/riskier asset ratio for sovereign stabilization
funds and generational savings sovereign funds. This result contradicts the stylized
fact of a lower risk/riskier asset ratio in stabilization funds than in
generational savings funds. A dynamic model inspired by the theoretical
framework of Bajeux-Besnainou et al. [1] is compatible with all the
stylized facts.