Portfolio Choice with Endogenous Donations - Modeling University Endowments

Georg Cejnek, Richard Franz and Neal M. Stoughton

Journal of Economics and Business, 2023, vol. 125-126, No S014861952300022X

Abstract: University endowments differ from other institutions in that donation income and spending rates are of equal importance to asset allocation decisions. Our paper develops an optimal endowment framework with endogenous donations income through a feedback dependence based on investment performance. We investigate both substitution and wealth effects due to incomplete markets and nonlinear donation risk. Looking at empirical data on actual US endowment practices, we validate our donations processes. Large endowments take riskier positions. However, this effect weakens with increasing donation risk, documenting another form of the substitution effect empirically. Spending rates are time varying and determined by relative investment opportunities and the corresponding interaction with endowment size.

Keywords: University Endowments; Endogenous Donations; Optimal Portfolio Choice (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:125-126:y:2023:i::s014861952300022x

DOI: 10.1016/j.jeconbus.2023.106129

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