The optimal spending rate versus the expected real return of a sovereign wealth fund

Artikel

We consider a sovereign wealth fund that invests broadly in the international financial markets. The influx to the fund has stopped. We adopt the life cycle model and demonstrate that the optimal spending rate from the fund is significantly less than the fund's expected real rate of return. The optimal spending rate ensures that the fund will last "forever". Spending the expected return will deplete the fund with probability one. Moreover, this strategy is inconsistent with optimal portfolio choice. Our results are contrary to the idea that it is sustainable to spend the expected return of a sovereign wealth fund.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 14 ; Year: 2021 ; Issue: 9 ; Pages: 1-35 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Asset Pricing; Trading Volume; Bond Interest Rates ; Exchange and Production Economies ; General Equilibrium and Disequilibrium: Financial Markets ; Micro-Based Behavioral Economics: General‡ ; Macroeconomics: Consumption; Saving; Wealth
• Subject: EIS ; endowment funds ; expected utility ; optimal spending rate ; recursive utility ; risk aversion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Aase, Knut K. ; Bjerksund, Petter
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2021

Further information

• DOI: doi:10.3390/jrfm14090425
• Handle: http://hdl.handle.net/10419/258529
• Last update: 10.03.2025, 11:41 AM CET