Essays on robust portfolio selection and pension finance

This thesis examines three different, but related problems in the broad area of portfolio management for long-term institutional investors, and focuses mainly on the case of pension funds. The first idea (Chapter 3) is the application of a novel numerical technique – robust optimization – to a real-world pension scheme (the Universities Superannuation Scheme, USS) for first time. The corresponding empirical results are supported by many robustness checks and several benchmarks such as the Bayes-Stein and Black-Litterman models that are also applied for first time in a pension ALM framework, the Sharpe and Tint model and the actual USS asset allocations. The second idea presented in Chapter 4 is the investigation of whether the selection of the portfolio construction strategy matters in the SRI industry, an issue of great importance for long term investors. This study applies a variety of optimal and naïve portfolio diversification techniques to the same SRI-screened universe, and gives some answers to the question of which portfolio strategies tend to create superior SRI portfolios. Finally, the third idea (Chapter 5) compares the performance of a real-world pension scheme (USS) before and after the recent major changes in the pension rules under different dynamic asset allocation strategies and the fixed-mix portfolio approach and quantifies the redistributive effects between various stakeholders. Although this study deals with a specific pension scheme, the methodology can be applied by other major pension schemes in countries such as the UK and USA that have changed their rules.

Breaking the double-edged sword of effort/trying hard: developmental equilibrium and Longitudinal relations among effort, achievement, and academic self-concept

Ever since the classic research of Nicholls (1976) and others, effort has been recognized as a double-edged sword: whilst it might enhance achievement, it undermines academic self-concept (ASC). However, there has not been a thorough evaluation of the longitudinal reciprocal effects of effort, ASC and achievement,in the context of modern self-concept theory and statistical methodology. Nor have there been developmental equilibrium tests of whether these effects are consistent across the potentially volatile early-to-middle adolescence. Hence, focusing on mathematics, we evaluate reciprocal effects models over the first four years of secondary school, relating effort, achievement (test scores and school grades), ASC, and ASCxEffort interactions for a representative sample of 3,421 German students (Mn age = 11.75 years at Wave 1). ASC, effort and achievement were positively correlated at each wave, and there was a clear pattern of positive reciprocal positive effects among ASC, test scores and school grades—each contributing to the other, after controlling for the prior effects of all others. There was an asymmetrical pattern of effects for effort that is consistent with the double-edged sword premise: prior school grades had positive effects on subsequent effort, but prior effort had non-significant or negative effects on subsequent grades and ASC. However, on the basis of a synergistic application of new theory and methodology, we predicted and found a significant ASC-by-effort interaction, such that prior effort had more positive effects on subsequent ASC and school grades when prior ASC was high—thus providing a key to breaking the double-edged sword.