Project CEMAPRE internal
| Title | Portfolio Management & Investor Profiling |
| Participants | Simme Avanzini, Raquel Gaspar (Principal Investigator), Inês Lopes, Carolina Oliveira, Paulo M Silva |
| Summary | "This project encompasses various initiatives related to portfolio construction and investor profiling, divided into three components: 1. Construction of portfolios and profiling institutional investors. In terms of portfolio construction, we focus on building portfolios for institutional investors. Specifically, we concentrate on constructing portfolios for defined contribution pension funds on one hand, and on the other hand, on portfolios designed to cover liabilities assumed by insurance companies when issuing contracts linked to the performance of financial markets. Despite the diverse nature of both constructions, regarding Investment Policy Statement (IPS) development, we are dealing with institutional investors, whose profiles need characterization. In the literature, the characterization of institutional investors' risk profiles tends to be rather opaque compared to individual investors. Here, we aim to disentangle profile-related restrictions from product-related restrictions and understand their impact on the proposed portfolios. 2. Portuguese individual investors. In terms of profiling individual investors, this study relies on data from CMVM (Portuguese supervision authority) questionnaires distributed to individual investors. Our aim is to characterize the “average” Portuguese investor. Subsequently, we attempt to establish a relationship between reported portfolio compositions and both their risk aversion and financial literacy. Finally, we investigate the efficiency of average portfolios across various investor characteristics. Our questionnaire sample covers the COVID pandemic subperiod, which may present challenges or opportunities. 3. Evaluation of portfolio performance and random portfolios. Contrary to what one would expect, constructing a sample of random portfolios is far from trivial. It turns out that creating random portfolios cannot be achieved by randomizing their weights. This holds true even in scenarios where the only weight restriction is that weights must add up to one. This restriction, for instance, prohibits the comparison of the performance of random portfolios with that of professionally managed portfolios. We aim to explore the existing literature and, hopefully, contribute to it by proposing alternative approaches. This project seeks to offer practical insights for both institutional and individual investors, also looking into more theoretical issues such as portfolio randomization." |