PT  - JOURNAL ARTICLE
AU  - Guillaume Coqueret
AU  - Lionel Martellini
AU  - Vincent Milhau
TI  - Equity Portfolios with Improved Liability-Hedging Benefits
AID  - 10.3905/jpm.2017.43.2.037
DP  - 2017 Jan 31
TA  - The Journal of Portfolio Management
PG  - 37--49
VI  - 43
IP  - 2
4099  - https://pm-research.com/content/43/2/37.short
4100  - https://pm-research.com/content/43/2/37.full
AB  - This article analyzes whether it is desirable and feasible for an investor endowed with liabilities to hold an equity portfolio with better liability-hedging properties than a broad cap-weighted index. From a theoretical standpoint, the authors show that liability-driven investors will generally benefit from reducing the tracking error of their performance portfolios with respect to liabilities, unless this comes at an exceedingly large loss of performance. The authors then empirically document the heterogeneity of interest-rate-hedging properties across the constituents of the S&P 500 universe, and they show that substantial welfare gains can be achieved by selecting low-volatility and high-dividend-yield stocks. These benefits are further enhanced if a minimum-variance weighting scheme is applied to the selected stocks.TOPICS: Portfolio construction, analysis of individual factors/risk premia, long-term/retirement investing