Evaluating Spending Policies in a Low-Return Environment

Peng Wang, Laura Chapman, Steven Peterson and Jon Spinney

Financial Analysts Journal, 2018, vol. 74, issue 4, 11-23

Abstract: For an endowment seeking to minimize payout variability while preserving the long-run health of the institution, appropriate spending policy is a crucial choice. We study two competing methods for setting spending policy—the “moving-average” method and the “snake-in-the-tunnel” (SIT) approach. We show that the SIT approach may significantly decrease the possibility of spending reductions in the short run. Additionally, the SIT approach with 3%–7% bands allows for a smooth evolution of payouts over time, which enhances spending predictability while preserving the endowment’s real (inflation-adjusted) long-run purchasing power. Disclosure: The authors report no conflicts of interest. Editor’s Note Submitted 13 October 2017 Accepted 12 April 2018 by Stephen J. Brown

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.2469/faj.v74.n4.1 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:ufajxx:v:74:y:2018:i:4:p:11-23

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/ufaj20

DOI: 10.2469/faj.v74.n4.1

Access Statistics for this article

Financial Analysts Journal is currently edited by Maryann Dupes

More articles in Financial Analysts Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().