International Investment Performance: Evidence from
Institutional Investors’ Foreign Equity Holdings

Allan Timmermann
David Blake


This paper analyzes the international equity holdings of a large panel
of UK pension funds. We find considerable evidence of market timing
activity, as illustrated by the funds’ decision to scale back their investments
in the US stock market during the 1990s. To explain this we jointly model
time-varying conditional moments and portfolio weight dynamics. Past
returns do not adequately explain the funds’ international portfolio flows
and only matter for the short run. Instead we find that a substantial part
of the evolution in portfolio weights is explained by time-varying conditional
expected returns, volatilities and covariances with domestic equity returns.
However, once we control for publicly known state variables, there is no
evidence of extra-market timing skills and most funds appear to have earned
small but negative returns from international market timing.

ISSN 1367-580x.

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