Shankar (2009) proposes a new investment strategy for retirees that bundles Treasury Inflation Protected Securities with a deferred annuity to guarantee real annual withdrawal rates of 5% or more with no risk of financial ruin. This strategy addresses three problems that retirees face: longevity risk, inflation risk, and liquidity risk inherent in the purchase of an immediate annuity. In our article, we evaluate the performance of this proposed strategy under realistic assumptions about costs, security design, and markets. In addition, we evaluate how the bequest motive might affect the choice between Shankar’s strategy and an immediate annuity.
{"title":"A new strategy to guarantee retirement income using TIPS and longevity insurance: A second look","authors":"Paul J. Haensly, K. Prakash Pai","doi":"10.61190/fsr.v24i4.3244","DOIUrl":"https://doi.org/10.61190/fsr.v24i4.3244","url":null,"abstract":"Shankar (2009) proposes a new investment strategy for retirees that bundles Treasury Inflation Protected Securities with a deferred annuity to guarantee real annual withdrawal rates of 5% or more with no risk of financial ruin. This strategy addresses three problems that retirees face: longevity risk, inflation risk, and liquidity risk inherent in the purchase of an immediate annuity. In our article, we evaluate the performance of this proposed strategy under realistic assumptions about costs, security design, and markets. In addition, we evaluate how the bequest motive might affect the choice between Shankar’s strategy and an immediate annuity.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"214 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135109515","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A great deal of academic research has focused on determinants of the spread between interest rates on conforming versus Jumbo and 15-year versus 30-year mortgages, but much less has been done to help the borrower determine what choice is best for him. We examine these issues from the borrower’s frame of reference and find that comparisons of mortgage terms can be facilitated by analyzing the marginal cash flows from one mortgage contract to another. For many borrowers the “conventional wisdom” leads to suboptimal choices; making the better choice can easily produce low-risk double-digit returns.
{"title":"A marginal cash flow analysis of mortgagors’ choices","authors":"Jim Musumeci","doi":"10.61190/fsr.v25i1.3267","DOIUrl":"https://doi.org/10.61190/fsr.v25i1.3267","url":null,"abstract":"A great deal of academic research has focused on determinants of the spread between interest rates on conforming versus Jumbo and 15-year versus 30-year mortgages, but much less has been done to help the borrower determine what choice is best for him. We examine these issues from the borrower’s frame of reference and find that comparisons of mortgage terms can be facilitated by analyzing the marginal cash flows from one mortgage contract to another. For many borrowers the “conventional wisdom” leads to suboptimal choices; making the better choice can easily produce low-risk double-digit returns.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"191 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135256559","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Psychological research suggests individuals often display past, present, or future time perspective (TP) biases that impact decision-making. This article examines the TP biases of financial advisors from different backgrounds and whether or not the biases impact client recommendations. Consistent with literature that suggests a link between TP and career choice, advisors are future oriented as agroup, regardless of their professional background. However, contrary to prior TP research, the bias does not appear to impact their professional decisions. Instead, the findings are consistent with research that demonstrates psychological biases are mitigated when professional decision makers perform job related tasks.
{"title":"The time perspective of financial advisors and its effect on their decision-making","authors":"Kenneth Ryack","doi":"10.61190/fsr.v24i4.3245","DOIUrl":"https://doi.org/10.61190/fsr.v24i4.3245","url":null,"abstract":"Psychological research suggests individuals often display past, present, or future time perspective (TP) biases that impact decision-making. This article examines the TP biases of financial advisors from different backgrounds and whether or not the biases impact client recommendations. Consistent with literature that suggests a link between TP and career choice, advisors are future oriented as agroup, regardless of their professional background. However, contrary to prior TP research, the bias does not appear to impact their professional decisions. Instead, the findings are consistent with research that demonstrates psychological biases are mitigated when professional decision makers perform job related tasks.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135256560","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a unique dataset on over one million 401(k) traders, we investigate momentum trading in 401(k) plans. We identify momentum traders in each quarter and evaluate how these traders perform. Results indicate the existence of momentum traders. However, there is no evidence that they successfully improve their portfolio performance. Instead, momentum sellers sell the outperformed funds. Overall, momentum traders could lose up to 2.14% per year. In seeking to explain such losses, we observe that 401(k) momentum traders follow a naïve momentum strategy. They do not have the ability to select funds with momentum investing styles but, instead, simply chase past returns.
{"title":"The overlooked momentum traders in 401(k) plans","authors":"Ning Tang","doi":"10.61190/fsr.v25i1.3260","DOIUrl":"https://doi.org/10.61190/fsr.v25i1.3260","url":null,"abstract":"Using a unique dataset on over one million 401(k) traders, we investigate momentum trading in 401(k) plans. We identify momentum traders in each quarter and evaluate how these traders perform. Results indicate the existence of momentum traders. However, there is no evidence that they successfully improve their portfolio performance. Instead, momentum sellers sell the outperformed funds. Overall, momentum traders could lose up to 2.14% per year. In seeking to explain such losses, we observe that 401(k) momentum traders follow a naïve momentum strategy. They do not have the ability to select funds with momentum investing styles but, instead, simply chase past returns.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135256558","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present a new way to develop withdrawal strategies from retirement portfolios. It is derived analytically, instead of from empirical testing, and it iterates always in the same manner. It is based on a new measure we develop, the Perfect Withdrawal Amount, for which we discuss how to construct a probability distribution and how to apply it sequentially. We also derive a new measure of sequencing risk. We present new strategies built with this framework.
{"title":"The perfect withdrawal amount:","authors":"E. Dante Suarez, Antonio Suarez, Daniel Walz","doi":"10.61190/fsr.v24i4.3243","DOIUrl":"https://doi.org/10.61190/fsr.v24i4.3243","url":null,"abstract":"We present a new way to develop withdrawal strategies from retirement portfolios. It is derived analytically, instead of from empirical testing, and it iterates always in the same manner. It is based on a new measure we develop, the Perfect Withdrawal Amount, for which we discuss how to construct a probability distribution and how to apply it sequentially. We also derive a new measure of sequencing risk. We present new strategies built with this framework.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135256562","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article examines the effects of the commonality of mutual funds within a fund family, which is measured by common stock holdings and multi-fund management, on fund operating expenses and return correlations. For U.S. equity funds during the period of 2001–2006, we find that common stock holdings and multi-fund management are negatively related to fund operating expenses but positively related to the correlation of fund return residuals, which increases the correlation of fund returns. Additionally, we find that the fund commonalities can have negative net effects on risk-adjusted returns of a portfolio with equity funds that have different investment objectives.
{"title":"The effects of fund commonality in mutual fund families on fund operating expenses and return correlations:","authors":"Youngkyun Park","doi":"10.61190/fsr.v25i1.3259","DOIUrl":"https://doi.org/10.61190/fsr.v25i1.3259","url":null,"abstract":"This article examines the effects of the commonality of mutual funds within a fund family, which is measured by common stock holdings and multi-fund management, on fund operating expenses and return correlations. For U.S. equity funds during the period of 2001–2006, we find that common stock holdings and multi-fund management are negatively related to fund operating expenses but positively related to the correlation of fund return residuals, which increases the correlation of fund returns. Additionally, we find that the fund commonalities can have negative net effects on risk-adjusted returns of a portfolio with equity funds that have different investment objectives.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"226 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135256561","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Equity indexed annuities (EIAs) are deferred annuities that credit interest according to a formula tied to the performance of an underlying equity index. This research expands previous research, particularly that of Reichenstein (2009, 2011), by examining the distribution of returns that could have been created on a rolling monthly basis since 1928 for 11 through 15-year investment horizons.Second, we examine investment alternatives that include the options imbedded in EIAs. Third, rather than assuming constant cap rates we allow cap rates to vary with interest rates. We find that for long time horizons the opportunity costs of investing in EIAs is high.
{"title":"A further examination of equity indexed annuities","authors":"Andy Terry, Erick Elder","doi":"10.61190/fsr.v24i4.3246","DOIUrl":"https://doi.org/10.61190/fsr.v24i4.3246","url":null,"abstract":"Equity indexed annuities (EIAs) are deferred annuities that credit interest according to a formula tied to the performance of an underlying equity index. This research expands previous research, particularly that of Reichenstein (2009, 2011), by examining the distribution of returns that could have been created on a rolling monthly basis since 1928 for 11 through 15-year investment horizons.Second, we examine investment alternatives that include the options imbedded in EIAs. Third, rather than assuming constant cap rates we allow cap rates to vary with interest rates. We find that for long time horizons the opportunity costs of investing in EIAs is high.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135109511","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This research studies antecedents and consequences of stock market image, defined as the sum of impressions about the stock market. It seeks to understand how several personality-oriented, cognition-based, and demographic variables influence investors’ images of the stock market and how these images impact investing behaviors and outcomes. The findings from cross-sectionalsurvey data suggest an individual’s financial literacy, propensity to trust, and sociability are important antecedents of his or her perceptions about the stock market. The data also show that stock market image affects investing motives, risk reduction efforts, emotional responses, and degree of satisfaction associated with investing.
{"title":"Investors’ images of the stock market:","authors":"Dawn Dobni, Marie Racine","doi":"10.61190/fsr.v25i1.3258","DOIUrl":"https://doi.org/10.61190/fsr.v25i1.3258","url":null,"abstract":"This research studies antecedents and consequences of stock market image, defined as the sum of impressions about the stock market. It seeks to understand how several personality-oriented, cognition-based, and demographic variables influence investors’ images of the stock market and how these images impact investing behaviors and outcomes. The findings from cross-sectionalsurvey data suggest an individual’s financial literacy, propensity to trust, and sociability are important antecedents of his or her perceptions about the stock market. The data also show that stock market image affects investing motives, risk reduction efforts, emotional responses, and degree of satisfaction associated with investing.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135256555","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
An initial reminder of three good things (TGT) increases charitable giving intentions, while reminders of three good financial things (TGFT) or three financial things (TFT) reduce them. Repeating these reminders daily during the following seven days results in even higher donation intentions for TGT, but shows no consistent additional effects for TGFT or TFT. Donation intentions measured one or thirty days after stopping these reminders fall significantly faster for TGT. No such effects arise for TGFT or TFT. Gratitude reminders without financial references increase donation intentions, especially when repeated over time. However, this gratitude effect fades after the reminders stop.
{"title":"Gratitude, finance, and financial gratitude reminders in charitable giving","authors":"Yi Liu, Russell N. James III","doi":"10.61190/fsr.v31i1.3192","DOIUrl":"https://doi.org/10.61190/fsr.v31i1.3192","url":null,"abstract":"\u0000 \u0000 \u0000An initial reminder of three good things (TGT) increases charitable giving intentions, while reminders of three good financial things (TGFT) or three financial things (TFT) reduce them. Repeating these reminders daily during the following seven days results in even higher donation intentions for TGT, but shows no consistent additional effects for TGFT or TFT. Donation intentions measured one or thirty days after stopping these reminders fall significantly faster for TGT. No such effects arise for TGFT or TFT. Gratitude reminders without financial references increase donation intentions, especially when repeated over time. However, this gratitude effect fades after the reminders stop. \u0000 \u0000 \u0000","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"46 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75050994","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Men consistently appear to outperform women on standard financial literacy tests. However, could the results be because of inherent gender bias in measurement tools? This study investigates the reasons for women selecting the non-response option in financial literacy questions, including numerical self-efficacy, risk aversion, and confidence. Our analysis finds evidence that women an- swer more questions than men utilizing the non-response option. A sustained lack of confidence with financial information is the primary reason. These results are important for shaping policy and providing resources that close the gap in measurement and ability.
{"title":"Do women have lower levels of financial literacy, or are they opting out?","authors":"Tracey West, Laura de Zwaan, Dianna Johnson","doi":"10.61190/fsr.v31i1.3195","DOIUrl":"https://doi.org/10.61190/fsr.v31i1.3195","url":null,"abstract":"\u0000 \u0000 \u0000Men consistently appear to outperform women on standard financial literacy tests. However, could the results be because of inherent gender bias in measurement tools? This study investigates the reasons for women selecting the non-response option in financial literacy questions, including numerical self-efficacy, risk aversion, and confidence. Our analysis finds evidence that women an- swer more questions than men utilizing the non-response option. A sustained lack of confidence with financial information is the primary reason. These results are important for shaping policy and providing resources that close the gap in measurement and ability. \u0000 \u0000 \u0000","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"78 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77421621","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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