high water marks high risk appetites convex compensation long horizons and portfolio choice we study the portfolio choice of hedge fund managers who are compensated by high water mark contracts we find that even risk neutral managers do not place unbounded weights on risky assets despite option like contracts instead they place a constant fraction of funds in a mean variance efficient portfolio and the rest in the riskless asset acting as would constant relative risk aversion crra investors this result is a direct consequence of the in de finite horizon of the contract we show that the risk seeking incentives of option like contracts rely on combining finite horizons and convex compensation schemes rather than on convexity alone

dynamic asset allocation with event risk major events often trigger abrupt changes in stock prices and volatility we study the implications of jumps in prices and volatility on investment strategies using the event risk framework of duffie pan and singleton 2000 we provide analytical solutions to the optimal portfolio problem event risk dramatically affects the optimal strategy an investor facing event risk is less willing to take leveraged or short positions the investor acts as if some portion of his wealth may become illiquid and the optimal strategy blends both dynamic and buy and hold strategies jumps in prices and volatility both have important effects

murder on the orient express the mystery of underperformance evidence increasingly shows that a crime of extensive underperformance has been committed in mutual funds pension funds and endowments in a pattern reminiscent of agatha christie s famous novel murder on the orient express an investigation leads to a surprising if inevitable conclusion the usual suspects investment managers fund executives investment consultants and investment committees are all guilty

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

is probability theory relevant for uncertainty a post keynesian perspective stable url http links jstor org sici sici 0895 3309 28199124 295 3a1 3c129 3aiptrfu 3e2 0 co 3b2 gthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgsun feb 17 13 40 22 2008

the effect of investment constraints on hedge fund investor returns this paper examines the effect of real world investor level investment constraints including several that have not been studied before on hedge fund performance and its persistence using a large consolidated database we demonstrate that hedge fund performance persistence is significantly reduced when rebalancing rules reflect fund size restrictions and liquidity constraints but remains statistically significant at higher rebalancing frequencies hypothetical investor portfolios that incorporate additional minimum diversification constraints minimum investment requirements and focus on open funds suggest that the performance and its persistence documented in earlier studies of hedge funds is not easily exploitable especially by large investors

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

note pasinetti s counter factual hypotheses in a recent article in this journal luigi l pasinetti not only reminded us of the role played by the modigliani miller mm theorem in the current crisis but also provided a critique based on examining its underlying assumptions in this note i extend his critique as it applies to one component of the theorem namely the dividend invariance proposition by demonstrating that its conclusions cannot follow from its assumptions there has been a logical slip copyright oxford university press

determinants of portfolio performance ii an update 1991 determinants of portfolio performance ii an update financial analysts journal vol 47 no 3 pp 40 48

the rise and fall of performance investing performance investing has enjoyed a remarkably long life cycle but the costs of active investment are so high and the incremental returns so low that for clients the money game is no longer a game worth playing investors both institutions and individuals are increasingly shifting toward indexing as acceptance of indexing grows clients and managers have an opportunity to stop focusing on price discovery which has made our markets so efficient and refocus on values discovery whereby investment professionals can help investors achieve good performance by structuring an appropriate long term investment program and staying with it

a bottom up approach to the risk adjusted performance of the buyout fund market we use the burgiss dataset to study private equity buyout fund performance our findings on performance before risk adjustments are consistent with those in the literature and indicate significant outperformance of buyout fund investments using a bottom up approach we identify the systematic risks of underlying companies in buyout funds to inform an appropriate risk adjusted benchmark which we determine to be a levered size and sector adjusted public index after making these risk adjustments we find no significant outperformance of buyout fund investments versus the public market equivalent on a dollar weighted basis we contend that even without significant risk adjusted outperformance buyout funds can play a valuable role in institutional investors portfolios

a search based theory of the on the run phenomenon we propose a model in which assets with identical cash flows can trade at different prices infinitely lived agents can establish long positions in a search spot market or short positions by first borrowing an asset in a search repo market we show that short sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed that asset enjoys greater liquidity a higher lending fee specialness and trades at a premium consistent with no arbitrage we derive closed form solutions for small frictions and provide a calibration generating realistic on the run premia

using asset allocation to protect spending the management of an educational endowment or other income producing portfolio involves two strategic decisions at the fund level asset allocation and choice of a spending rule traditionally these two decisions are linked for example to preserve capital on average but the optimal link would be more dynamic this article describes a new protective strategy that links spending and asset allocation in a way that preserves spending power in down markets but participates significantly in up markets the strategy is similar to constant proportions portfolio insurance in that part of the fund is maintained in safe assets to preserve the value needed for continued expenditures like portfolio insurance the strategy outperforms traditional strategies when markets are persistently up or persistently down but underperforms when portfolios are whipsawed by alternating ups and downs

the financial crisis of 2008 in fixed income markets we explore how a relatively small amount of heterogeneous securities created turmoil in financial markets in much of the world in 2007 and 2008 the drivers of the financial turmoil and the financial crisis of 2008 were heterogeneous securities that were hard to value these securities created concerns about counterparty risk and ultimately created substantial uncertainty the problems spread in ways that were hard to see in advance the run on prime money market funds in september 2008 and the effects on commercial paper were an important aspect of the crisis itself and are discussed in some detail

how should responsible investors behave keynes s distinction between entrepreneurship and speculation revisited this paper deals with keynes s distinction between entrepreneurship and speculation regarding business people in general and especially investors behaviour based on keynes s thoughts about financial markets it analyses how different motivations influence the decision making process of investors and its consequences for stock markets and the real economy and clarifies that keynes s considerations are still useful for understanding contemporary developments and risks in the financial system furthermore it points out that keynes s theories and policy recommendations should be understood in the context of his moral considerations especially relating to individual responsibility of investors finally keynes s moral thoughts can be taken as a foundation for a contemporary approach to investors responsibility

paper millionaires how valuable is stock to a stockholder who is restricted from selling it abstract many firms have stockholders who face severe restrictions on their ability to sell their shares and diversify the risk of their personal wealth we study the costs of these liquidity restrictions on stockholders using a continuous time portfolio choice framework these restrictions have major effects on the optimal investment and consumption strategies because of the need to hedge the illiquid stock position and smooth consumption in anticipation of the eventual lapse of the restrictions these results provide a number of important insights about the effects of illiquidity in financial markets

on the political economy of uk pension scheme regulation we take the opportunity of the recent consultation exercise on uk defined benefit pension schemes conducted by the pensions regulator to examine the approach to pension scheme portfolio management that it and the related pension protection fund have adopted after summarising the regulatory basis we identify three essential building blocks for further examination the notion of matching liabilities to long term government bonds the use of standard deviation of return as a measure of risk and the idea that strategic asset allocation is the most important decision in portfolio management this last one the brinson axiom we examine these foundations individually and then collectively with the aid of two unobtrusive postulates the first being the efficient markets hypothesis and the second that pension scheme assets should be used to purchase only those securities with minimal default risk from the perspective of what we have elsewhere called the keynes graham schema we conclude that the foundations are unsound and that the conventional approach adopted not only by both the regulator and the protection fund but also by the major actuarial consultancies induces if not actually requires pension schemes to engage in speculation rather than investment

portfolio claustrophobia asset pricing in markets with illiquid assets many classes of assets are illiquid or nonmarketable in that they cannot always be traded immediately thus a portfolio position in these becomes at least tem porarily irreversible we study the asset pricing implications of this type of illiquidity in an exchange economy with heterogeneous agents in this market one asset is always liquid the other asset can be traded initially but then not again until after a blackout period illiquidity has a dramatic effect agents abandon diversification and choose polarized portfolios instead the value of liquidity can represent a large portion of the equilibrium price of an asset jel g11 g12

security design with status concerns abstract this paper provides a status based explanation for convertible securities an entrepreneur with status concerns inducing risk taking decides how to finance the firm and how to dynamically manage it solving analytically for the optimal security we find that it is substantially similar to a convertible security our model can explain why convertible securities are mainly issued by start ups and small firms as we show that their salient characteristics higher volatility and dynamic flexibility accentuate incentives to issue convertible securities we also provide analytical results relevant to quantifying how status concerns affect credit risk an established factor behind security choice

how does illiquidity affect delegated portfolio choice in response to how they are compensated mutual fund managers who are underperforming by mid year are likely to increase the risk of their portfolios toward the year end we argue that an increase in the liquidity of the stocks that managers use to shift risk can lead to an increase in the size of their risky bets this in turn hurts fund investors by increasing the costs of misaligned incentives associated with delegated portfolio management we provide both theoretical and empirical results that are consistent with this argument we use decimalization as an exogenous shock to liquidity to identify causal effects

optimal inattention to the stock market inattentive agents update their information sporadically and thus respond belatedly to news we generate optimally inattentive behavior by assuming that to observe the value of his investment portfolio the consumer must pay a cost that is proportional to the portfolio s contempo raneous value it is optimal for the consumer to check his investment portfolio at equally spaced points in time consuming from a riskless trans actions account in the interim the riskless transactions account that finances consump tion guarantees that funds are never unwittingly exhausted we show that the optimal interval of time between consecutive observations of the value of the portfolio is the unique positive solution to a nonlinear equation quantitatively even a small observation cost one basis point of wealth implies a substantial eight month decision interval under conventional parameter values

physician financial incentives and cesarean delivery new conclusions from the healthcare cost and utilization project this paper replicates gruber et al s gruber j kim j mayzlin d 1999 physician fees and procedure intensity the case of cesarean delivery journal of health economics 18 4 473 490 analysis of the effect of physician financial incentives on cesarean delivery rates using their data sample selection criteria and specification coincident trends explain much of their estimated positive relation between fees and cesarean utilization which also falls somewhat upon the inclusion of several childbirth observations that had been inadvertently excluded from their estimation sample the data ultimately indicate that a 1000 increase in current dollars in the reimbursement for a cesarean section increases cesarean delivery rates by about one percentage point one quarter of the effect estimated originally

the place of portfolio management in the keynesian canon recent publications such as the two volume oxford handbook of post keynesian economics harcourt and kreisler 2013 and the elgar companion to post keynesian economics king 2012 provide authoritative summaries of the current state of the art on a very wide range of relevant topics in particular the contents pages of these books define the field as seen by adherents the obvious implication being that those topics excluded have not yet acquired the necessary status by passing appropriate academic tests of relevance and coherence inter alia the focus of this article portfolio management is on one of these omitted topics starting from the fundamental recognition of uncertainty we examine the whole range of characteristics of the keynesian approach demonstrating the coherence and applicability of its multidimensional nature in the process pointing by contrast to the one dimensional sterility of the conventional approach our general conclusion is that there is a rightful place in the keynesian canon for portfolio management by which we mean not only investment management but also speculative management where these two qualifiers are used in the keynes graham sense

health insurance eligibility utilization of medical care and child health two economists applied data from the current population survey and the national health interview survey and state level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization of medical care and health effects of medicaid eligibility on low income children the models took into consideration the recent expansions of medicaid to low income children 38 of those ineligible for medicaid in 1984 who became eligible due to changes during 1984 1992 were uninsured between 1984 and 1992 expansions of the medicaid program increased the proportion of children eligible for medicaid almost two fold 16 1 vs 31 2 yet coverage rates were always lower than eligibility rates 13 2 vs 16 1 in 1984 and 20 3 vs 31 2 in 1992 and the increase in coverage rates was only about 50 of the increase in eligibility rates during 1984 1992 the probability that a child was eligible for medicaid increased the probability of health insurance coverage by 29 77 when the model considered bias in variables e g a recession in a state the take up rate was only 22 73 nevertheless medicaid markedly increased use of medical care for example eligibility for medicaid increased the likelihood of making a visit to a physicians office in the last two weeks by about 50 it also increased the probability of a child visiting the hospital suggesting inefficiency in the way that providers deliver care to medicaid enrollees medicaid eligibility had a significant effect on reducing child mortality the 15 1 percentage point increase in eligibility during 1984 1992 reduced child mortality by 4 5 when the researchers examined parent assessed subjective health measures medicaid eligibility had no effect on child health medicaid eligibility reduced race and education based disparities in the number of visits and racial differences in mortality yet it may actually intensify current disparities in health care delivery site

the british origins of the us endowment model the us endowment model is an approach to investing popularized by yale university that emphasizes diversification and active management of equity oriented illiquid assets the writings of the british economist john maynard keynes were a considerable influence on the investment philosophy of yale s chief investment officer david swensen how did keynes gain these insights we track keynes s experiences managing the king s college cambridge endowment and show how some of the lessons he learned remain relevant to endowments and foundations today

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

determinants of portfolio performance in order to delineate investment responsibility and measure performance contribution pension plan sponsors and investment managers need a clear and relevant method of attributing returns to those

public insurance and child hospitalizations access and efficiency effects abstract the 1983 1996 period saw enormous expansions in access to public health insurance for low income children we explore the impact of these expansions on child hospitalizations while greater access to inpatient care may increase hospital utilization improved efficiency of care for children who are also newly eligible for primary care could lower hospitalization rates we use a large sample of child discharges from the national hospital discharge survey nhds to assess the net impact of medicaid expansions on hospitalizations during this period we find that total hospitalizations increased significantly with each 10 percentage point rise in eligibility leading to an 8 4 increase in hospitalizations thus the access effect strongly outweighs any efficiency effect produced by expanded coverage however we find some support for an efficiency effect the increase in hospitalizations for unavoidable conditions is much larger than that for avoidable conditions that are most sensitive to outpatient care indeed the increase in avoidable hospitalizations is less than half that of unavoidable hospitalizations and it is not statistically significant we also find that expanded medicaid eligibility reduced the average length of stay but increased the utilization of inpatient procedures so that the net impact on total costs per stay is ambiguous

retrospectives john maynard keynes investment innovator john maynard keynes made a major contribution to the development of professional investment management based on detailed archival research at king s college cambridge we describe keynes investment philosophy his investment performance and the evolution of his investment approach as the manager of a large educational endowment his portfolios were actively managed and unconventional he was an investment innovator both in making a substantial allocation to the then new institutional asset class of common stocks as well as in championing value investing

cutting fertility effects of cesarean deliveries on subsequent fertility and maternal labor supply despite the growing incidence of cesarean deliveries cds procedure costs and benefits continue to be controversially discussed in this study we identify the effects of cds on subsequent fertility and maternal labor supply by exploiting the fact that obstetricians are less likely to undertake cds on weekends and public holidays and have a greater incentive to perform them on fridays and days preceding public holidays to do so we adopt high quality administrative data from austria women giving birth on different days of the week are pre treatment observationally identical our instrumental variable estimates show that a non planned cd at parity 0 decreases lifecycle fertility by almost 13 6 this reduction in fertility translates into a temporary increase in maternal employment

optimal consumption and investment strategies with liquidity risk and lifetime uncertainty for markov regime switching jump diffusion models abstract in this paper we consider the optimal consumption and investment strategies for households throughout their lifetime risks such as the illiquidity of assets abrupt changes of market states and lifetime uncertainty are considered taking the effects of heritage into account investors are willing to limit their current consumption in exchange for greater wealth at their death because they can take advantage of the higher expected returns of illiquid assets further we model the liquidity risks in an illiquid market state by introducing frozen periods with uncertain lengths during which investors cannot continuously rebalance their portfolios between different types of assets in liquid market investors can continuously remix their investment portfolios in addition a markov regime switching process is introduced to describe the changes in the market s states jumps classified as either moderate or severe are jointly investigated with liquidity risks explicit forms of the optimal consumption and investment strategies are developed using the dynamic programming principle markov chain approximation methods are adopted to obtain the value function numerical examples demonstrate that the liquidity of assets and market states have significant effects on optimal consumption and investment strategies in various scenarios

health insurance and the labor supply decisions of older workers evidence from a u s department of veterans affairs expansion this paper exploits a major mid 1990s expansion in the u s department of veterans affairs health care system to provide evidence on the labor market effects of expanding health insurance availability using data from the current population survey we employ a difference in differences strategy to compare the labor market behavior of older veterans and non veterans before and after the va health benefits expansion to test the impact of public health insurance on labor supply we find that older workers are significantly more likely to decrease work both on the extensive and intensive margins after receiving access to non employer based insurance workers with some college education or a college degree are more likely to transition into self employment a result consistent with job lock effects however less educated workers are more likely to leave self employment a result suggesting that the positive income effect from receiving public insurance dominates the job lock effect for these workers some relatively disadvantaged sub populations may also increase their labor supply after gaining greater access to public insurance consistent with complementary positive health effects of health care access or decreased work disincentives for these groups we conclude that this reform has affected employment and retirement decisions and suggest that future moves toward universal coverage or expansions of medicare are likely to have significant labor market effects

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

the erosion of agriculture in an oil economy the case of export crop production in trinidad abstract this paper examines the pressures upon export agriculture in trinidad that have led to dramatic declines in sugar cocoa copra and citrus production over the past two decades data drawn from official publications and primary surveys reveal the financial strains on the industry and highlight the adverse impact of the oil economy the latter is manifested through inflationary pressures on wage rates the funding of major capital projects offering alternative employment opportunities the uncontrolled expansion of recurrent expenditure on politically motivated job creation schemes that have aided withdrawal of labor from socially and financially less rewarding agricultural employment and an escalation in land values which has diminished the need for agricultural improvement particular concern for the decline is expressed as efficiency and future viability of the new power based manufacturing developments have yet to be proved

a news utility theory for inattention and delegation in portfolio choice recent evidence suggests that investors are inattentive to their portfolios and hire expensive portfolio managers this paper develops a life cycle portfolio choice model in which the investor experiences loss averse utility over news and can ignore his portfolio in such a model the investor prefers to ignore and not rebalance his portfolio most of the time because he dislikes bad news more than he likes good news such that expected news causes a first order decrease in utility consequently the investor has a first order willingness to pay a portfolio manager who rebalances actively on his behalf moreover the investor can diversify over time and his consumption aligns with predictions of mental accounting i structurally estimate the preference parameters by matching stock shares and stock market non participation over the life cycle my parameter estimates are in line with the literature generate reasonable intervals of inattention and simultaneously explain consumption and wealth accumulation over the life cycle here it matters that news utility preserves first order risk aversion even in the presence of stochastic labor income which also causes stock shares to rise in wealth

auction failures and the market for auction rate securities abstract the market for auction rate securities ars made headlines during the second week of february 2008 when auctions at which the bonds interest rates reset experienced a wave of failures contrary to headlines that attribute the failures to a frozen market or investors irrationality we find that 1 even at their height less than 50 of ars experienced auction failures 2 the likelihood of auction failure was directly related to the level of the bonds maximum auction rates 3 the implied market clearing yields of bonds with failed auctions were significantly above their maximum auction rates and 4 ars yields were generally higher than yields of various cash equivalent investment alternatives we infer that investors priced the possibility of auctions failures into ars yields and rationally declined to bid for bonds for which required market yields exceeded their maximum auction rates

optimal asset allocation with fixed term securities we investigate the optimal asset allocation of an investor who can invest in a fixed term security that is only traded at time 0 using a generalized martingale approach we solve the investor s optimal portfolio problem determine the optimal allocation to fixed term securities and provide a representation of trading strategies in terms of a liquidity related derivative we apply our approach to two benchmark scenarios fixed term fixed rate bank deposits and unspanned closed end securities that can only be traded at time 0 we show that both can be key parts of the investor s optimal asset mix and we investigate the dependence of optimal allocations to fixed term investments implied liquidity premia and other characteristics on the underlying model parameters

the economics of private equity funds this article analyzes the economics of the private equity industry using a novel model and dataset we obtain data from a large investor in private equity funds with detailed records on 238 funds raised between 1993 and 2006 we build a model to estimate the expected revenue to managers as a function of their investor contracts and we test how this estimated revenue varies across the characteristics of our sample funds among our sample funds about two thirds of expected revenue comes from fixed revenue components that are not sensitive to performance we find sharp differences between venture capital vc and buyout bo funds bo managers build on their prior experience by increasing the size of their funds faster than vc managers do this leads to significantly higher revenue per partner and per professional in later bo funds the results suggest that the bo business is more scalable than the vc business and that past success has a differential impact on the terms of their future funds jel g10 g20 g24

secrets of the academy the drivers of university endowment success university endowments have received much attention recently for their superior investment returns compared with other institutional investors this study documents trends in college and university endowment returns and investments in the united states between 1992 and 2005 using data on over a thousand schools such endowments have generally performed well over this time period with a median growth rate of 7 4 percent per year and median return of 6 9 percent this sector has been dominated both in size and performance by the endowments of elite universities such as the ivy league schools the top 20 endowments grew more than 9 percent annually on a real basis between 1992 and 2005 as of 2007 the two largest endowments belonging to harvard and yale have grown to 35 billion and 22 billion in size respectively much of the growth in endowment size has been driven by investment performance as we will show in the paper the top endowments posted impressive returns in 2005 averaging a net real return of 12 3 percent compared to 4 4 percent posted by the s p 500 index in the same year we investigate the underlying drivers of these high returns and show that performance is related to the size of endowment the quality of the student body and the use of alternative investments we caution ordinary investors that mimicking the strategies of the top endowments would not necessarily result in similar returns

physician payments and infant mortality evidence from medicaid fee policy while efforts to improve the health of the uninsured have focused on demand side policies such as increasing insurance coverage supply side changes may be equally important yet there is little direct evidence on the effect of policies designed to increase the supply of medicaid services to the poor we provide such evidence by examining the relationship between infant mortality and the ratio of medicaid fees to private fees for obstetrician gynecologists we build a state and year specific index of the fee ratio for 1979 1992 a period of substantial variation in relative medicaid fees we find that increases in fee ratios are associated with significant declines in the infant mortality rate we also find that higher fees raise payments made to physicians and clinics under the medicaid program but reduce payments to hospitals finally we compare the cost effectiveness of reducing infant mortality by increasing fee ratios to the efficacy of reducing mortality by expanding the medicaid eligibility of pregnant women although our results are sensitive to the time period used we conclude that raising fee ratios is at least as cost effective as increasing eligibility this abstract was borrowed from another version of this item

pricing by non profit institutions the case of hospital cost shifting abstract this paper shows that a hospital whose objective function includes output as well as profits may raise price to private paying patients in response to cuts in the price it receives for madicaid or medicaid patients evidence is presented to show that hospitals in illinois cost shifted in this manner in response to substantial reductions in medicaid payments in the early 1980s as private sector pricing becomes more competitive however the ability and willingness of hospitals to cost shift will wane

what would yale do if it were taxable corrected january 2016 the distinctive financial goals and constraints of ultra high net worth individuals together with their aggregate growth in assets have led to the emergence of new institutional investing which includes the best practices from institutional investors but also incorporates the critical element of tax management the authors design new institutional asset allocations that incorporate traditional investment metrics in a tax aware setting specifically they show how risk and after tax returns need to be combined from inception when seeking an optimal after tax asset allocation diversification is especially important for taxable investors because low asset class correlations can facilitate the inclusion of attractive but tax inefficient asset classes in a tax aware allocation

on equity markets long term decision making and performance metrics the 2012 kay review of uk equity markets and long term decision making confirmed that short termism was a problem identifying asset managers as the dominant players in the investment chain mr kay concluded that their appointment and monitoring was too often based on short term relative performance and recommended an examination of the metrics employed using as conceptual framework the keynes graham schema proposed by woods in 2013 we demonstrate that the most commonly employed measure the time weighted rate of return is inappropriate and inaccurate as a performance metric and should be replaced by the familiar but generally ignored money weighted rate of return hitherto there have been three strands to the economics and finance literature on portfolio management namely with reference to the efficient markets hypothesis the selection of optimal portfolios in a mean variance context using quadratic optimisation techniques and principal agent issues that exist between portfolio managers and their clients in this article we initiate a new strand in the literature by focusing on the metric used to measure the performance of a portfolio manager incidentally showing that our approach has immediate implications for the three existing strands

short termism of long term investors the investment behaviour of dutch insurance companies and pension funds countercyclical investment strategies of large institutional investors such as insurance companies and pension funds can support financial stability while procyclical investment behaviour is consi

agriculture in an export boom economy a comparative analysis of policy and performance in indonesia mexico and nigeria abstract the 1970s oil boom was accompanied for most developing country exporters by stagnating agricultural production high rural emigration and high levels of food imports this paper evaluates the experiences of indonesia mexico and nigeria dutch disease and other macroeconomic phenomena had important effects on agricultural performance but equally if not more important were microeconomic factors including agricultural price policies changing patterns of food demand based on distribution of petroleum income and public investment structural characteristics of the agricultural sector factor intensity of different subsectors labor availability and migration patterns and geographical concentration of agricultural activity and strategies of agricultural development and investment

portfolio choice and pricing in illiquid markets abstract this paper studies portfolio choice and pricing in markets in which immediate trading may be impossible it departs from the literature by removing restrictions on asset holdings and finds that optimal positions depend significantly and naturally on liquidity when expected future liquidity is high agents take more extreme positions given that they do not have to hold those positions for long when they become undesirable consequently larger trades should be observed in markets with more frequent trading liquidity need not affect the price significantly however because liquidity has offsetting impacts on different agents demands this result highlights the importance of unrestricted portfolio choice the paper draws parallels with the transaction cost literature and clarifies the relationship between the price level and the realized trading frequency in this literature

seventy five years of investing for future generations university endowments invest for future generations so their strategy should reflect their long horizon we researched whether they really do behave like long term investors we examined the behav

waiting for news in the market for lemons econometrica vol 80 no 4 july 2012 1433 1504 waiting for news in the market for lemons b y b rendan d aley and b rett g reen 1 we study a dynamic setting in which stochastic information news about the value of a privately informed seller s asset is gradually revealed to a market of buyers we con struct an equilibrium that involves periods of no trade or market failure the no trade period ends in one of two ways either enough good news arrives restoring confidence and markets reopen or bad news arrives making buyers more pessimistic and forcing capitulation that is a partial sell off of low value assets conditions under which the equilibrium is unique are provided we analyze welfare and efficiency as they depend on the quality of the news higher quality news can lead to more inefficient outcomes our model encompasses settings with or without a standard static adverse selection problem in a dynamic setting with sufficiently informative news reservation values arise endogenously from the option to sell in the future and the two environments have the same equilibrium structure k eywords dynamic games adverse selection information economics signaling 1 introduction c onsider an entrepreneur who is interested in selling her company due to liquidity constraints naturally she is better informed than the market about her company s fundamentals she would like to sell yet there is no reason she is forced to do so on any given day nor can she commit to delaying trade with every passing day that she retains ownership she gains or loses the day s profit and maintains the option to sell the next day if trade is in fact delayed then the market may learn about the value of the firm by observing cash flows investments customer base and so forth herein lies the key innovation of this paper we introduce an exogenous public information process news into a model of such settings we then study the implications for trading behavior efficiency and welfare we model the environment as a game played in continuous time where a risk neutral seller faces a competitive market there is common knowledge of gains from trade but the seller is privately informed about the asset s value i e her type which may be either high or low at each point in time prior to trade the seller receives offers from the market if an offer is accepted then the trade is consummated and the game ends if all offers are rejected then the seller consumes the type dependent flow payoff endowed by the asset contemporaneously information about the seller s type is publicly revealed we are grateful to a co editor and three anonymous referees for helpful comments and sug gestions we are greatly indebted to jeremy bulow michael harrison and andrzej skrzypacz for useful conversations comments and encouragement special thanks also to peter demarzo johannes horner ilan kremer jon levin paul milgrom yuliy sannikov bob wilson and sem inar participants at chicago chicago gsb duke mit kellogg nyu penn stanford olin wharton unc yale and the 7th annual duke northwestern texas io theory conference 2012 the econometric society doi 10 3982 ecta9278

keynes meets markowitz the trade off between familiarity and diversification we develop a model of portfolio choice to nest the views of keynes who advocates concentration in a few familiar assets and markowitz who advocates diversification we use the concepts of ambiguity and ambiguity aversion to formalize the idea of an investor s familiarity toward assets the model shows that for any given level of expected returns the optimal portfolio depends on two quantities relative ambiguity across assets and the standard deviation of the expected return estimate for each asset if both quantities are low then the optimal portfolio consists of a mix of familiar and unfamiliar assets moreover an increase in correlation between assets causes an investor to increase concentration in familiar assets flight to familiarity alternatively if both quantities are high then the optimal portfolio contains only the familiar asset s as keynes would have advocated in the extreme case in which both quantities are very high no risky asset is held nonparticipation this paper was accepted by brad barber teck ho and terrance odean special issue editors

the price of wine abstract using historical price records for bordeaux premiers crus we examine the impact of aging on wine prices and the long term investment performance of fine wine in line with the predictions of an illustrative model young maturing wines from high quality vintages provide the highest financial returns past maturity famous ch teaus deliver growing non pecuniary benefits to their owners using an arithmetic repeat sales regression over 1900 2012 we estimate a real financial return to wine investment net of storage costs of 4 1 which exceeds bonds art and stamps returns to wine and equities are positively correlated finally we find evidence of in sample return predictability

venture capital funds flow performance relationship and performance persistence this paper finds that venture capital funds that are expected to be backed by more skilled investors show no performance persistence but a significant flow performance relationship in contrast funds that are expected to be backed by less skilled investors show performance predictability and have a non significant flow performance relationship these results suggest that only skilled investors use all available information to adjust their capital allocation and as a result eliminate performance predictability as argued theoretically by berk and green 2004 results also show that kaplan and schoar 2005 overstate the persistence in fund performance by not using an ex ante measure of the performance of earlier funds whether or not an ex ante measure is used however the persistence is largely due to unsophisticated investors when investors are sophisticated the performance of earlier funds sequence and fund size do not help predict the performance of the focal fund

an analysis of the s p 500 index and cowles s extensions price indexes and stock returns 1870 1999 this article provides a consistent monthly stock price index from january 1871 through 1999 the broadly defined s p weekly index is reconstructed from 1918 and carried forward as the s p 500 composite index to the present cowles s monthly index is improved in order to provide month end estimates from february 1885 cowles s estimates of dividends and earnings for this index from 1871 are reevaluated and are carried forward until spliced to the s p daily estimates that began in 1957 the result is a monthly index of prices dividends and earnings based on consistent definitions over a period of 130 years

portfolio choice with illiquid assets we present a model of optimal allocation to liquid and illiquid assets where illiquidity risk results from the restriction that an asset cannot be traded for intervals of uncertain duration illiquidity risk leads to increased and state dependent risk aversion and reduces the allocation to both liquid and illiquid risky assets uncertainty about the length of the illiquidity interval as opposed to a deterministic nontrading interval is a primary determinant of the cost of illiquidity we allow market liquidity to vary from normal periods when all assets are fully liquid to illiquidity crises when some assets can only be traded infrequently the possibility of a liquidity crisis leads to limited arbitrage in normal times investors are willing to forgo 2 of their wealth to hedge against illiquidity crises occurring once every 10 years this paper was accepted by itay goldstein finance

public health insurance and medical treatment the equalizing impact of the medicaid expansions abstract we investigate the impact of expanding public health insurance on the medical treatment received by women at childbirth using vital statistics data on every birth in the us over the 1987 1992 period the effects of insurance status on treatment are identified using the tremendous variation in eligibility for public insurance coverage under the medicaid program over this period among low education mothers who were largely uninsured before being made eligible for medicaid eligibility for this program was associated with significant increases in the use of a variety of obstetric procedures among women with more education however there is a countervailing effect on procedure use most of these women had private insurance before becoming medicaid eligible and some may have been crowded out onto the public program moving from insurance which reimburses medical care more generously to insurance with much less generous reimbursement this movement was accompanied by reductions in procedure use thus on net the medicaid expansions had an equalizing effect increasing the treatment intensity of the previously uninsured while lowering it among the previously insured

sustainable development in pacific micro economies abstract this paper argues that the central economic problem for a number of very small pacific island economies is the preservation and enhancement of their status as rentier societies and the relatively high living standards vis a vis other developing countries which go with the status the thrust of most development planning in the region with its focus on sustainable expansion of productive activity is misdirected in these small countries it is not productive activity but rent entitlements which must be sustained and reproduced over time aid philately and migrant remittances are not merely supplements to local incomes they are the foundations of the modern economy insofar as conventional development projects crowd out aid and remittance entitlements their impact is immiserizing criticism is offered of a recent argument for returning to sustainable subsistence economies

background risk and university endowment funds abstract this paper tests the effect of background risk on university endowment portfolios where background risk is defined as the volatility of universities nonfinancial income the results show that higher background risk is associated with lower portfolio standard deviations universities with higher background risk invest significantly more in fixed income and less in alternative assets a 1 standard deviation increase in background risk increases the allocation to fixed income by approximately 15 relative to the mean there is also evidence that wealthier highly selective universities hold riskier portfolios

margin based asset pricing and deviations from the law of one price in a model with heterogeneous risk aversion agents facing margin constraints we show how securities required returns increase in both their betas and their margin requirements negative shocks to fundamentals make margin constraints bind lowering risk free rates and raising sharpe ratios of risky securities especially for high margin securities such a funding liquidity crisis gives rise to bases that is price gaps between securities with identical cash flows but different margins in the time series bases depend on the shadow cost of capital which can be captured through the interest rate spread between collateralized and uncollateralized loans and in the cross section they depend on relative margins we test the model empirically using the credit default swap bond bases and other deviations from the law of one price and use it to evaluate central banks lending facilities jel g01 g12 g13 e44 e50 the paramount role of funding constraints becomes particularly salient during liquidity crises with the one that started in 2007 being an excellent case in point banks unable to fund their operations closed down and the funding problems spread to other investors such as hedge funds that relied on bank funding therefore traditional liquidity providers became forced sellers interest rate spreads increased dramatically treasury rates dropped sharply and central banks stretched their balance sheets to facilitate funding these funding problems had significant asset pricing effects the most extreme example being the failure of the law of one price loop securities with nearly

malpractice risk and medical treatment selection abstract we study how legal and financial incentives affect medical decisions using patient level data from italy we identify the effect of a change in medical liability pressure by exploiting the geographical distribution of hospitals across court districts where some districts increase the predictability of expected damages per injury while others do not using a difference in differences identification strategy we show that as certainty of compensation increases c sections increase by 6 5 percentage points there is no statistically significant effect on secondary health outcomes of either mothers or newborns but the increase is higher for low risk than high risk mothers the increase is driven by hospitals that have lower quality are governed by inefficient court districts face lower expected damages and are paid more per c section

malpractice law physicians financial incentives and medical treatment how do they interact abstractthe effects of malpractice law and financial incentives on physicians are typically studied independently this paper shows that to make both positive and normative statements about medical malpractice liability one must consider physicians legal and financial incentives jointly i develop a simple model to show that when treatment is unprofitable at the margin mitigation of liability lowers treatment levels conversely when treatment is profitable mitigation of liability raises them motivated by this simple theoretical framework i analyze the impact of a tort reform in texas that mitigated malpractice liability consistent with the theory the rate of cesarean sections among commercially insured mothers for whom the procedure is considered profitable increased by 2 percentage points relative to the rate of cesarean sections among mothers covered by medicaid for whom the procedure is thought to be unprofitable

oil windfalls in a small parliamentary democracy their impact on trinidad and tobago in common with other oil exporters trinidad and tobago reaped large windfall gains after 1973 their use was heavily influenced by its distinctive political economy and resulted in substantial weakening of its non oil traded sectors the dutch disease attempts to diversify through gas based industrialization are not likely to replace shrinking oil income this paper traces the relationship from political objectives to use of oil windfalls and the effects on the non oil economy

transaction costs and asset prices a dynamic equilibrium model in this article we study the effects of transaction costs on asset prices we assume an overlapping generations economy with a riskless liquid bond and many risky stocks carrying proportional transaction costs we obtain stock prices and turnover in closed form surprisingly a stock s price may increase in transaction costs and a more frequently traded stock may be less adversely affected by an increase in transaction costs calculations based on the marginal investor overestimate the effects of transaction costs for realistic parameter values transaction costs have very small effects on stock prices but large effects on turnover

physician response to fee changes with multiple payers this paper develops a general model of physician behavior with demand inducement encompassing the two benchmark cases of profit maximization and target income behavior it is shown that when income effects are absent physicians maximize profits and when income effects are very strong physicians seek a target income the model is used to derive own and cross price expressions for the response of physicians to fee changes in the realistic context of more than one payer under the alternative behavior assumptions of profit maximization and target income behavior the implications for public and private fee policy and empirical research on physician response to fees are discussed

first do no harm tort reform and birth outcomes in the 1980s and 1990s many states adopted tort reforms it has been argued that these reforms have reduced the practice of defensive medicine arising from excess tort liability we find that this does not appear to be true for a large and important class of cases childbirth in the united states using data from national vital statistics natality files on millions of individual births from 1989 to 2001 we ask whether specific tort reforms affect the types of procedures that are performed and the health outcomes of mothers and their infants we find that reform of the joint and several liability rule or the deep pockets rule reduces complications of labor and procedure use whereas caps on noneconomic damages increase them we show that these results are consistent with a model of tort reform that explicitly allows for variations in patient condition

on keynes as an investor as keynes himself admitted in 1938 his approach to portfolio management changed dramatically during the course of his career he abandoned speculation in favour of investment namely a careful selection of a few investments having regard to their cheapness and potential intrinsic value over a period of years ahead in other words he was applying the margin of safety a concept we particularly associate nowadays with benjamin graham who incorporated it inter alia into his magnum opus of 1934 security analysis an examination of the writings of keynes on the one hand and graham on the other reveals considerable overlap between not to say unity of their respective conceptions such is their complementarity that it is reasonable to speak of a keynes graham schema we conclude that this is the natural starting point for the 2011 kay review of uk equity markets as it should have been for the myners review of uk institutional investment a decade ago copyright oxford university press

j m keynes s investment performance a note aside from his contribution to the development of economic theory john maynard keynes is reputed to have had extraordinary skills as an investor in the stock market there has been no evidence to date however to support this widely accepted legend the purpose here is to examine empirically the investment performance of john maynard keynes in particular as first bursar of the chest fund at king s college cambridge over the period from 1927 to 1945 on the basis of modern performance evaluation measures the evidence indicates that keynes was an outstanding portfolio manager beating the market by a large margin

the effect of competitive pressure on charity hospital responses to price shopping in california abstract since higher charges to private patients are a major source of financing for hospital care to the uninsured increased price shopping by private payers may mean that hospitals are less able to provide such care i study the effect of increased price shopping on california hospital markets over the 1984 1988 period i find that there was a large fall in net private revenues and net income in the least concentrated hospital markets in the state after the advent of price shopping perhaps as a result care to the uninsured fell dramatically in these markets as well relative to more concentrated markets