Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258529 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 9 [Article No.:] 425 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-35
Publisher: 
MDPI, Basel
Abstract: 
We consider a sovereign wealth fund that invests broadly in the international financial markets. The influx to the fund has stopped. We adopt the life cycle model and demonstrate that the optimal spending rate from the fund is significantly less than the fund's expected real rate of return. The optimal spending rate ensures that the fund will last "forever". Spending the expected return will deplete the fund with probability one. Moreover, this strategy is inconsistent with optimal portfolio choice. Our results are contrary to the idea that it is sustainable to spend the expected return of a sovereign wealth fund.
Subjects: 
EIS
endowment funds
expected utility
optimal spending rate
recursive utility
risk aversion
JEL: 
G10
G12
D9
D51
D53
D90
E21
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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