The Endowment Model and Modern Portfolio Theory

• 成果类型: Article
• 署名作者: Dimmock, Stephen G.; Wang, Neng; Yang, Jinqiang
• 署名单位: National University of Singapore; Columbia University; National Bureau of Economic Research; Shanghai University of Finance & Economics; Shanghai Institute of International Finance & Economics
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4759
• 发表日期: 2024
• 页码: 1554-1579
• 关键词: endowment model; portfolio choice; liquidity; modern portfolio theory; asset allocation; alternative assets

摘要

We develop a dynamic portfolio choice model with illiquid alternative assets to analyze the endowment model, widely adopted by institutional investors, such as pension funds, university endowments, and sovereign wealth funds. In the model, the alternative asset has a lockup but can be liquidated at any time by paying a proportional cost. We model how investors can engage in liquidity diversification by investing in multiple illiquid alternative assets with staggered lockup expirations and show that doing so increases alternatives allocations and investor welfare. We show how illiquidity from lockups interacts with illiquidity from secondary market transaction costs resulting in endogenous and time-varying rebalancing boundaries. We extend the model to allow crisis states and show that increased illiquidity during crises causes holdings to deviate significantly from target allocations.