Research and publications

Portfolio Choice For Oil-Based Sovereign Wealth Funds

Given recent interest in the activities of sovereign wealth funds (SWFs), this paper reviews the financial economics of portfolio choice for oil-based investors. It views the optimal asset allocati ...

Author(s):

Bernhard Scherer

Summary:

Given recent interest in the activities of sovereign wealth funds (SWFs), this paper reviews the financial economics of portfolio choice for oil-based investors. It views the optimal asset allocation problem of a sovereign wealth fund as the decision-making problem of an investor with non-tradable endowed wealth (oil reserves). Optimal portfolios combine speculative demand (optimal growth) as well as hedging demand (hedging resource fluctuation risk) and the level of risk taking should depend both on the fraction of financial wealth to resource wealth and on the oil shock hedging properties of the investments. A revisited version of this working paper was published in the Winter 2011 issue of the Journal of Alternative Investments.

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Type :	Working paper
Date :	27/10/2009
Keywords :	Sovereign Wealth Funds

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