Long-term U.S. infrastructure returns and portfolio selection

•We re-construct U.S. listed infrastructure index returns from 1927 through 2010.•Our findings reveal that recent infrastructure returns understate long-term tail-risk.•Infrastructure tail-risk is commensurate with that of a portfolio of U.S. stocks.•There are benefits from holding infrastructure as...

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Bibliographic Details
Published in:Journal of banking & finance 2014-05, Vol.42, p.314-325
Main Authors: Bianchi, Robert J., Bornholt, Graham, Drew, Michael E., Howard, Michael F.
Format: Article
Language:English
Subjects:
Asset pricing
Indexes
Infrastructure
Investors
Long-term analysis
Portfolio analysis
Portfolio management
Portfolio performance
Public infrastructure
Rates of return
Risk
Risk exposure
Risk factors
Studies
U.S.A
Variance
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Summary:•We re-construct U.S. listed infrastructure index returns from 1927 through 2010.•Our findings reveal that recent infrastructure returns understate long-term tail-risk.•Infrastructure tail-risk is commensurate with that of a portfolio of U.S. stocks.•There are benefits from holding infrastructure assets in investment portfolios. Our understanding of the long-term return behavior and portfolio characteristics of public infrastructure investments is limited by a relatively short history of empirical data. We re-construct U.S. listed infrastructure index returns by mapping their monthly performance to received systematic and industry risk factors from 1927 through 2010. Our findings reveal that the infrastructure returns in recent years may understate the tail-risk that investors could experience over the long-term, however, this tail-risk is commensurate with holding a broad portfolio of U.S. stocks. For mean-variance and mean-CVaR investors, we report the benefits of holding public infrastructure assets in investment portfolios.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2014.01.034