Doctor of Philosophy (PhD)


Information Systems and Decision Sciences (Business Administration)

Document Type



The debate around the perpetual nature of endowment funds from the perspective of current versus future obligations is a major problem that I would like to address in two ways: (i) a macro-level treatment of the simultaneous asset allocation and spending rate with subsistence levels (analogous to the habit formation concept); and (ii) a micro-level analysis of one part of the endowment portfolio with a particular emphasis on the currency hedging decision. The purpose of the third chapter is to illustrate the significance of joint determination of appropriate asset allocation and spending rate decisions, and to describe the behavior of the endowment fund portfolio under certain modeling assumptions, including a sensitivity analysis that evaluates, in particular, the relationship between the spending rate and stock allocation over an extended period of time by changing the values of certain parameters in the model. The fourth chapter tackles the issue of international diversification from the point of view of active currency hedging. The ability to control risk with the possibility of return enhancement is the main reason why institutional investors such as university endowments should worry about the international diversification of investment portfolios. I have concentrated on an area, which has been overlooked by endowment funds for a long time. That is, the introduction of currency hedging in the context of an international portfolio and the provision of some behavioral considerations: first, implicitly, in the framework of the traditional expected utility maximization and then, explicitly, in the disappointment-averse functional context. In both chapters, the discussion is heavily based on the specification of the utility function; i.e., habit formation through the use of a subsistence level in the case of asset allocation and spending rate determination, and behavioral/agency-related formulation of various aversion parameters in the international portfolio management chapter.



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Committee Chair

Faik Koray

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Business Commons