Determinants of Asset Allocation Decisions of Robo-Advisors in the Asia Pacific Region

 




 

Lai, Thong Yan (2022) Determinants of Asset Allocation Decisions of Robo-Advisors in the Asia Pacific Region. Masters thesis, Tunku Abdul Rahman University College.

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Abstract

Robo-advisor is one of the new and fast-growing financial technology applications in Asia Pacific that uses rational logic, statistical rules and deep machine learning algorithms to analyse financial products’ characteristics and investors’ profiles to provide optimal personalised portfolio recommendations. In order to understand the methodology behind robo-advisors’ operations, this study aims to examine the determinants of asset allocation decisions of robo-advisors. Specifically, this study aims to identify how investors’ risk profiles, fund characteristics and macroeconomic factors can be related to robo-advisors’ asset allocations. This study is conducted based on 30 robo-advisors in seven selected economies in the Asia Pacific region, namely Malaysia, Singapore, India, Hong Kong Special Administrative Region, Taiwan Province of China, South Korea and Japan for the year of 2022. The pooled ordinary least squares method is applied in this study. According to the research findings, it is concluded that investor’s risk profiles exert a positive and significant impact on the percentage of equity in the recommended portfolio. In particular, higher share of equities is allocated for more risk seeking investors and less proportion is allocated for more risk averse investors. Furthermore, this study demonstrates that the number of portfolios offered is positive and significantly associated with the percentage of equity in the recommended portfolio. This implies that variations in the number of model portfolios offered across various robo-advisors result in different portfolio recommendations. On the other hand, expertise in different asset classes is reported as an insignificant determinant for asset allocation decisions of robo-advisors. Moreover, inflation rate is found to be insignificant in explaining the robo-advisors’ portfolio recommendations. Lastly, the results show that the exchange rate has a negative and significant impact on the percentage of equity in the recommended portfolio. The empirical findings of this study have several important implications. Firstly, policymakers can formulate policies and regulations to supervise robo-advisors, assess their algorithms and protect investors’ rights. In addition, this study assists algorithm system developers of robo-advisor platforms to regularly review and redesign an enhanced algorithm system. Besides, individual investors can make rational investment decisions by understanding the methodology behind the recommendations and rebalancing of asset allocation by the robo-advisors

Item Type: Thesis / Dissertation (Masters)
Subjects: Social Sciences > Finance
Technology > Technology (General)
Social Sciences > Finance > Investment
Faculties: Faculty of Accountancy, Finance & Business > Master of Accounting and Finance
Depositing User: Library Staff
Date Deposited: 29 Dec 2022 05:31
Last Modified: 29 Dec 2022 05:31
URI: https://eprints.tarc.edu.my/id/eprint/23836