IDEAS home Printed from https://ideas.repec.org/a/bla/eufman/v22y2016i4p519-539.html
   My bibliography  Save this article

Target Risk Funds

Author

Listed:
  • Edwin J. Elton
  • Martin J. Gruber
  • Andre de Souza

Abstract

There is a vast literature which shows that investors don't make rational decisions in allocating resources among different investments. Target risk funds and target date funds are two types of mutual funds primarily organised as fund of funds that make the asset allocation decision for an investor. Both are used as options in 401(k) plans and Individual Retirement Accounts. However they control for risk in very different ways. Target risk funds have not been studied. This article is the first comprehensive study of their characteristics and performance and how they compare to target date funds as an investment.

Suggested Citation

  • Edwin J. Elton & Martin J. Gruber & Andre de Souza, 2016. "Target Risk Funds," European Financial Management, European Financial Management Association, vol. 22(4), pages 519-539, September.
    • Handle: RePEc:bla:eufman:v:22:y:2016:i:4:p:519-539
    DOI: 10.1111/eufm.12098
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/eufm.12098
    Download Restriction: no
    File URL: https://libkey.io/10.1111/eufm.12098?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kees G. Koedijk & Alfred M.H. Slager & Philip A. Stork, 2016. "Investing in Systematic Factor Premiums," European Financial Management, European Financial Management Association, vol. 22(2), pages 193-234, March.
    2. George Comer & Norris Larrymore & Javier Rodriguez, 2009. "Controlling for Fixed-Income Exposure in Portfolio Evaluation: Evidence from Hybrid Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 481-507, February.
    3. Elton, Edwin J. & Gruber, Martin J. & Green, T. Clifton, 2007. "The Impact of Mutual Fund Family Membership on Investor Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(2), pages 257-277, June.
    4. Elton, Edwin J, et al, 1993. "Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 1-22.
    5. Edwin J. Elton & Martin J. Gruber & Andre de Souza & Christopher R. Blake, 2015. "Target Date Funds: Characteristics and Performance," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 5(2), pages 254-272.
    6. Pastor, Lubos & Stambaugh, Robert F., 2002. "Mutual fund performance and seemingly unrelated assets," Journal of Financial Economics, Elsevier, vol. 63(3), pages 315-349, March.
    7. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    8. John Y. Campbell & Martin Feldstein, 2001. "Introduction to "Risk Aspects of Investment-Based Social Security Reform"," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 1-10, National Bureau of Economic Research, Inc.
    9. Edwin J. Elton & Martin J. Gruber & Christopher R. Blake, 2012. "Does Mutual Fund Size Matter? The Relationship Between Size and Performance," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 2(1), pages 31-55.
    10. Gary B. Gorton & Fumio Hayashi & K. Geert Rouwenhorst, 2013. "The Fundamentals of Commodity Futures Returns," Review of Finance, European Finance Association, vol. 17(1), pages 35-105.
    11. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
    12. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
    13. Elton, Edwin J & Gruber, Martin J & Rentzler, Joel C, 1987. "Professionally Managed, Publicly Traded Commodity Funds," The Journal of Business, University of Chicago Press, vol. 60(2), pages 175-199, April.
    14. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    15. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fabio C. Bagliano & Carolina Fugazza & Giovanna Nicodano, 2014. "Optimal Life-Cycle Portfolios for Heterogeneous Workers," Review of Finance, European Finance Association, vol. 18(6), pages 2283-2323.
    2. Bart Dees & Theo Nijman & Arthur Soest, 2023. "Stated Product Choices of Heterogeneous Agents are Largely Consistent with Standard Models," De Economist, Springer, vol. 171(3), pages 267-302, September.
    3. Jing Jian Xiao & Chunsheng Tao, 2020. "Consumer finance/household finance: the definition and scope," China Finance Review International, Emerald Group Publishing Limited, vol. 11(1), pages 1-25, June.
    4. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    5. Yee Loon, 2011. "Model uncertainty, performance persistence and flows," Review of Quantitative Finance and Accounting, Springer, vol. 36(2), pages 153-205, February.
    6. Korniotis, George & Bonaparte, Yosef & Kumar, Alok, 2020. "Income Risk and Stock Market Entry/Exit Decisions," CEPR Discussion Papers 15370, C.E.P.R. Discussion Papers.
    7. Horneff, Wolfram J. & Maurer, Raimond H. & Mitchell, Olivia S. & Dus, Ivica, 2008. "Following the rules: Integrating asset allocation and annuitization in retirement portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 396-408, February.
    8. Massimiliano Caporin & Grégory M. Jannin & Francesco Lisi & Bertrand B. Maillet, 2014. "A Survey On The Four Families Of Performance Measures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 917-942, December.
    9. Raj Chetty & László Sándor & Adam Szeidl, 2017. "The Effect of Housing on Portfolio Choice," Journal of Finance, American Finance Association, vol. 72(3), pages 1171-1212, June.
    10. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, January.
    11. Bagliano, Fabio C. & Fugazza, Carolina & Nicodano, Giovanna, 2019. "Life-cycle portfolios, unemployment and human capital loss," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 325-340.
    12. Ľuboš Pástor & M Blair Vorsatz & Jeffrey Pontiff, 0. "Mutual Fund Performance and Flows during the COVID-19 Crisis," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 791-833.
    13. Paul Willen & Felix Kubler, 2006. "Collateralized Borrowing And Life-Cycle Portfolio Choice," 2006 Meeting Papers 578, Society for Economic Dynamics.
    14. Lin, Wen-chang & Lu, Jin-ray, 2012. "Risky asset allocation and consumption rule in the presence of background risk and insurance markets," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 150-158.
    15. Huang, Huaxiong & Milevsky, Moshe A., 2008. "Portfolio choice and mortality-contingent claims: The general HARA case," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2444-2452, November.
    16. Zhi Da & Pengjie Gao & Ravi Jagannathan, 2008. "Informed Trading, Liquidity Provision, and Stock Selection by Mutual Funds," NBER Working Papers 14609, National Bureau of Economic Research, Inc.
    17. Matallin-Saez Juan Carlos, 2008. "The Dynamics of Mutual Funds and Market Timing Measurement," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(4), pages 1-37, December.
    18. Blake, David & Wright, Douglas & Zhang, Yumeng, 2014. "Age-dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 105-124.
    19. Betermier, Sebastien & Jansson, Thomas & Parlour, Christine A. & Walden, Johan, 2011. "Hedging Labor Income Risk," Working Paper Series 255, Sveriges Riksbank (Central Bank of Sweden).
    20. Spaenjers, Christophe & Spira, Sven Michael, 2015. "Subjective life horizon and portfolio choice," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 94-106.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:eufman:v:22:y:2016:i:4:p:519-539. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/efmaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.