Financial Services Review最新文献

The Financial Modernization Act (FMA) of 1999 permits banks, securities firms, and insurance companies to combine and compete with each other in all types of financial services. No longer are the names of financial institutions synonymous with their particular products. This suggests moving from an “institutional perspective” that focuses upon the historical specializations of institutions, to a “functional perspective” that focuses upon the value added by financial services. The functional approach offers the finance curriculum a broad and flexible methodology for covering financial services.

In this paper, we establish why “prefabricated” asset allocation schemes mandated by some education savings programs might be suboptimal. Then, using the New York’s College Savings Program as an example, we simulate and then compare end of period wealth accumulated in both a tax preferred but regimented asset allocation plan, and in a nontax protected plan.

We find, first, that the longer the child participates in the plan, the greater the benefit. Second, participants in higher tax brackets derive greater benefits; adherence to prespecified asset allocation for low tax bracket investors often results in return loss that overshadows the tax benefit.

This study applies modern portfolio theory to the individual asset allocation decision of an investor in an emerging market. The study utilizes data from January 1991 to January 1999. Turkey’s experience with high inflation, depreciation in its currency, and a relatively fast growing economy provide a unique financial environment to examine personal portfolio asset allocation. Seven investments are considered for inclusion in the portfolio, including the Turkish, German and American stock markets, gold, and 12-month bank deposits denominated in Turkish liras, German marks, and U.S. dollars. The findings indicate that the lira-denominated bank deposit is the dominant investment vehicle.

The purpose of this study is to examine employee participation and contribution incentives among defined contribution retirement plans. Using data from the 1995 Survey of Consumer Finances, probit and tobit analysis indicates no significant relationship between employer contributions and an employee’s decision to make contributions into his or her retirement plan. However, of those employees who are contributing to their pension plans, the employer contribution percentage has a significant positive effect on employee contribution rates. Therefore, the findings support our hypothesis of a direct relationship between the average employee deferral percentage and the existence of an employer matching contribution.

This paper examines an interesting calendar effect—a relationship between contemporaneous stock market returns and Federal Open Market Committee (FOMC) meeting dates. Examining S&P 500 stock market returns between 1960 and 2000, the study finds that there is a positive and significant calendar effect associated with FOMC meeting dates. The data reveal that while FOMC meeting dates only accounted for 4.42% of the trading days, FOMC meeting date returns accounted for over 13% of the cumulative returns over the time period. Using a dummy variable for FOMC meeting dates, regression results find that the FOMC meeting dates have a significantly positive effect on overall market returns.

Some studies find the dollar-cost averaging investment strategy to be sub-optimal from a mean variance expected utility of wealth perspective. Statman [The Journal of Portfolio Management (1995) fall] introduces a behavioral rationale for the persistence of dollar-cost averaging. Using prospect theory to create an alternative utility function that does not require investors to be strictly risk averse, we empirically test Statman’s conjecture for four investment strategies and for alternative stock investments. We find loss aversion still does not explain the existence of the dollar-cost averaging investment strategy.

Retirement planning guidelines were determined using a Delphi research design among 188 financial planners and educators. Consensus was found for using a 4% inflation rate, an 8.5% rate of return on investments, and a replacement ratio of 70–89% of current income when making retirement projections. Nine-tenths of the experts agreed that families should have achieved 50–60% of their retirement savings goal by age 50 and 85–90% by age 60. Regarding asset allocation, over 60% felt it was prudent to start moving toward more conservative investments about 3–5 years before retirement. Recommendations were developed on the proportion of growth-oriented equities to hold at various points prior to and after retiring. While the level of consensus was high, occupational and gender differences were noted.

The paper identifies differences between private (401 (k)) plans, which have evolved under ERISA and existing public plans, which have not. Examination of model legislation reveals that public plans should largely conform to ERISA going forward and reflect best practices in the private sector. Empirical analysis of equity mutual funds with $1.8 trillion in assets and institutional equity accounts with $98 billion in assets demonstrates efficiencies in separately procured institutional investment, administrative and educational services relative to retail investment products. The analysis points to tension between the duties of trustees and the demands of participants requesting large numbers of retail investment options.

Recent empirical research has identified a tendency for equity mutual funds to provide consistent performance relative to other funds over time. Studies of bond funds have centered around investment grade, straight bonds and have concluded that fund managers outperform indexes on a gross (although not net) basis, but that performance is hampered by high expense levels. We examine nonconventional bond funds (high-yield bonds, global issues and convertible bonds) and find that short-term performance persistence is present, but limited to the high-yield bond subsample. Fund managers are unable to distinguish themselves in the long term, despite the diverse nature of the funds they oversee.