Tactical Target Date Funds

Francisco Gomes (), Alexander Michaelides and Yuxin Zhang ()
Additional contact information
Francisco Gomes: Department of Finance, London Business School, London NW1 4SA, United Kingdom
Yuxin Zhang: School of Finance, RenMin University, Beijing 100872, China

Management Science, 2022, vol. 68, issue 4, 3047-3070

Abstract: We propose target date funds modified to exploit stock return predictability driven by the variance risk premium. The portfolio rule of these tactical target date funds (TTDFs) is extremely simplified relative to the optimal one, making it easy to implement and to communicate to investors. We show that saving for retirement in TTDFs generates economically large welfare gains, even after we introduce turnover restrictions and transaction costs, and after taking into account parameter uncertainty. This predictability also appears to be uncorrelated with individual household risk, suggesting that households are in a prime position to exploit it.

Keywords: target date funds; life cycle portfolio choice; retirement savings; variance risk premium; strategic asset allocation; tactical asset allocation; market timing (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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http://dx.doi.org/10.1287/mnsc.2021.3981 (application/pdf)

Related works:
Working Paper: Tactical Target Date Funds (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:4:p:3047-3070

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