Portable Alphas from Pension Mispricing

25 Pages Posted: 19 Oct 2005 Last revised: 25 Feb 2012

See all articles by Francesco A. Franzoni

Francesco A. Franzoni

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Jose M. Marin

Charles III University of Madrid

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2005

Abstract

We introduce a new dynamic trading strategy based on the systematic mispricing of U.S. companies sponsoring Defined Benefit pension plans. This portfolio produces an average return of 1.51% monthly between 1989 and 2004, with a Sharpe Ratio of 0.26. The returns of the strategy are not explained by those of primary assets. These returns are not related to those of benchmarks in the alternative investments industry either. Hence, we are in the presence of a pure alpha strategy that can be ported into a large variety of portfolios to significantly enhance their performance.

Keywords: Market Efficiency, Anomaly, Defined Benefit Plans, Portable Alpha, Enhanced Indexing, Pension Contributions

JEL Classification: D80, G11, G12, G14, G23

Suggested Citation

Franzoni, Francesco A. and Marin, Jose M., Portable Alphas from Pension Mispricing (October 1, 2005). Available at SSRN: https://ssrn.com/abstract=820904 or http://dx.doi.org/10.2139/ssrn.820904

Francesco A. Franzoni (Contact Author)

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jose M. Marin

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

HOME PAGE: http://www.josemarin.com

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