Greek public pension funds can invest up to 23% into risky assets and are not allowed to invest outside Greece. This paper seeks to investigate the costs of investment constraints on pension fund portfolios. In particular we try to quantify the losses that portfolios suffer due to under-diversification and sub-optimal asset allocation. We find that the high concentration of Greek equity portfolios imposes a substantial return and utility loss which is further increased when the lack of international diversification is taken into account. Restricting the weight of equities to 23% of the total portfolio, leads to sub-optimal asset allocation that costs as much as 2% (3%) per annum compared to a balanced domestic (global) benchmark.

We provide evidence using data from the G7 countries suggesting that return dispersion may serve as an economic state variable in that it reliably predicts time-variation in economic activity, market returns, the value and momentum premia and market volatility. A relatively high return dispersion predicts a deterioration in business conditions, a higher value premium, a smaller momentum premium and lower market returns. Dispersion based market and factor timing strategies outperform out-of-sample buy and hold strategies. The evidence are robust to alternative specifications of return dispersion and are not driven by US data. Return dispersion conveys incremental information relative to idiosyncratic risk.

Mutual fund manager excess performance should be measured relative to their self-reported benchmark rather than the return of a passive portfolio with the same risk characteristics. Ignoring the self-reported benchmark results in different measurement of stock selection and timing components of excess performance. We revisit baseline empirical evidence fund performance evaluation utilizing stock selection and timing measures that incorporate the self-reported benchmark. We introduce a new factor exposure based approach for measuring the – static and dynamic – timing capabilities of mutual fund managers. We overall conclude that current studies are likely to be misstating skill because they ignore the managers’ self-reported benchmark in the performance evaluation process.