Working Paper: NBER ID: w20421
Authors: David Chambers; Elroy Dimson; Justin Foo
Abstract: Founded in 1441, King's College was one of Cambridge University's wealthiest Colleges, endowed with a vast agricultural portfolio. John Maynard Keynes was appointed bursar just after WWI and initiated a major reallocation to equities, an innovation at least as radical as the late 20th century commitment to illiquid assets by Harvard and Yale. Keynes initially pursued a market-timing approach to investment with mixed success and failed to anticipate the 1929 market crash. Thereafter, his switch to a patient buy-and-hold strategy allowed him to maintain his commitment to equities in the subsequent market slump, reflecting the natural advantages that accrue to long horizon investors. Keynes' innovations in endowment asset management, implemented over a dynamic period of capital market development and economic turbulence remain of great relevance to modern investors emerging from the Great Recession.
Keywords: Keynes; Endowment Management; Asset Allocation; Investment Strategy
JEL Codes: B26; G11; G14; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Keynes's shift from market timing to buy-and-hold strategy (E12) | endowment's ability to weather economic downturns (D14) |
| Keynes's asset allocation decisions (G11) | financial returns of the endowment (G19) |
| Keynes’s focus on value and small-cap stocks (E12) | endowment’s performance (D29) |