empirical evaluation of the asset allocation puzzle abstract we examine the portfolio choice puzzle posed by canner mankiw and weil canner n mankiw n g weil d n 1997 an asset allocation puzzle the american economic review 87 181 191 from data on the portfolio composition of 470 clients of a brokerage firm we obtain that the bonds stocks ratio does decrease in relation to risk tolerance this result complements the findings of cmw 1997 by focusing on actual allocations of individual portfolios rather than recommended allocations by financial advisors

on the impact of heterogeneity on indeterminacy some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents heterogeneity we consider a neoclassical two sector growth model with technological externalities agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments we find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences however when the inverse of absolute risk aversion is a convex respectively concave function homogeneity heterogeneity tends to neutralize the external effects and eliminate indeterminacy

ethical strategy focus and mutual fund management performance and persistence abstract the aim of this study is to analyze whether managers practitioners and individual investors could obtain higher risk adjusted returns by allocating their investments to funds that integrate specific levels of socially responsible sr criteria in their portfolios this is achieved by comparing the performance of mutual funds according to their sr characteristics environmental governance social and sustainability attributes for a large sample of 3920 equity sr mutual funds around the world performance is measured using a multifactor model that incorporates relevant benchmarks according to the fund investment objectives and using carhart s 1997 methodology to measure mutual fund performance persistence in general fund performance is not significant the average being negative and close to zero funds achieving relatively high levels of sr attributes in their portfolios seem to experience overall worse performances this evidence is however mainly driven by the behavior of worst performing funds moreover investing in the previous best sr funds could lead investors to greater overall returns in most areas and levels of sr attributes considered this evidence highlights the role of managers in enhancing the returns of a portfolio with a well defined sr investment policy therefore there is no incompatibility between pursuing higher ethical and sustainable values as well as greater financial performances from investments provided managers have the skills necessary to choose the right sr funds

capital labor substitution and competitive nonlinear endogenous business cycles abstract we develop simple geometrical methods to study local indeterminacy bifurcations and stochastic sunspot equilibria near a steady state in nonlinear two dimensional economic models we present in particular a simple constructive geometrical characterization of the support of stochastic sunspot equilibria not only arbitrarily near a steady state but also along local bifurcations these methods are applied to a simple aggregative model to study in particular the influence of capital labor substitution and of the aggregate labor supply wage elasticity on the occurrence of competitive endogenous deterministic or stochastic fluctuations journal of economic literature classification numbers e32 c62

can heterogeneous preferences stabilize endogenous fluctuations while most of the literature concerned with indeterminacy and endogenous cycles is based on the restrictive assumption of a representative consumer some recent contributions have investigated the role of heterogeneous agents in dynamics this paper adds to this latter strand of the literature by highlighting the effects of heterogeneity in consumers preferences within an overlapping generations economy with capital accumulation endogenous labor supply and consumption in both periods using a mean preserving approach to heterogeneity we show that increasing the dispersion of propensity to save decreases macroeconomic volatility by narrowing down the range of parameter values compatible with indeterminacy and ruling out expectations driven fluctuations under a sufficiently large heterogeneity

market watch information and availability cascades among the media and investors in the u s ipo market in this study we advance current research on social influence in markets by examining how the recency and availability of information about others actions within and between different communities influence their allocation of attention and their evaluations specifically we examine how the media and investors allocate attention to and evaluate newly public firms in the days following their initial public offerings ipos our findings have implications for understanding the fieldwide processes through which the value of new firms is established in markets

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

wealth inequality preference heterogeneity and macroeconomic volatility in two sector economies we explore the link between wealth inequality preference heterogeneity and macroeconomic volatility in a two sector neoclassical growth model first we prove that if agents have homogeneous preferences when the absolute risk tolerance is a strictly convex concave function sufficiently high low levels of wealth inequality may lead to endogenous fluctuations in the neighborhood of the steady state second we consider the effects of preference heterogeneity when agents are homogeneous with respect to their wealth we show that when the utility function belongs to the hara class sufficiently high levels of preference heterogeneity may lead to endogenous fluctuations in the neighborhood of the steady state if the elasticity of intertemporal substitution in consumption is greater than one

ruling out multiplicity and indeterminacy the role of heterogeneity it is well known that economies of scale that are external to the individual decision makers can lead to self fulfilling prophecies and the multiplicity or even indeterminacy of equilibrium we argue that the importance of this source of multiplicity and indeterminacy is overstated in representative agent models as they ignore the potential stabilizing effect of heterogeneity we illustrate this in a version of matsuyama s 1991 two sector model with increasing returns to scale two main results are shown first sufficient homogeneity with respect to individual productivity leads to the instability and non uniqueness of a given stationary state and the indeterminacy of the corresponding stationary state equilibrium second sufficient heterogeneity leads to the global saddle path stability and the uniqueness of a given stationary state and the global uniqueness of equilibrium

capital externalities in olg economies abstract the recent literature has stressed that externalities however small may lead to indeterminacy and endogenous fluctuations while on the contrary intertemporal substitution in consumption leads to local uniqueness this paper introduces increasing returns through aggregate capital externalities into the overlapping generations model with endogenous labor and consumption in both periods of life we show that local determinacy of the steady state prevails when externalities are arbitrarily small as long as the fraction of young age consumption out of wage income is large enough conversely local indeterminacy with small externalities requires both labor supply to be close to indivisible and irrealistic values of the propensity to save out of the wage income more surprising is the fact that increasing the size of externalities indeed reduces the range of values of the consumption to wage ratio associated with multiple equilibria because of two conflicting effects on savings that operate through wage and interest rate

money moral authority and the politics of creditworthiness this article moves beyond current controversies on the nature of money by suggesting that a general social process allows different kinds of organizations and networks from states to banks to local communities to produce currencies that is the articulation of criteria of creditworthiness or what i call the exercise of moral authority bankers specialize in moral authority but when that authority is contested challenging groups must articulate alternative criteria of creditworthiness for their currencies to become stable and acceptable i illustrate these processes with historical material from the postbellum united states which i use to discuss why the federal government failed to create a stable financial system and why local bankers engaged in a process of financial innovation that further destabilized money i conclude with reflections on the shifting structural sources of moral authority which have made the local level a springboard for destabilizing financial innovations

where are the gains from international diversification eafe and international marketlike mandates are popular with u s institutional fund sponsors the rationale seems to be that the international equity market has higher expected returns than the u s equity market and can substantially diversify u s portfolios the empirical evidence for the 1970 94 period does not support either claim nor does theory help asset pricing models do not argue that risk factors have geographically different expected returns recent research for the u s market shows that two risk factors value and size explain differences in expected returns across equity portfolios preliminary evidence suggests that the same factors work in foreign markets as well international value stocks and international small stocks diversify u s portfolios more than eafe in fact a sensible reason to diversify internationally is to load up on value stocks and small stocks without concentrating in one geographic region if one does not wish to concentrate in such stocks then international di

bond ladders and optimal portfolios we analyze complex bond portfolios within the framework of a dynamic general equilibrium asset pricing model equilibrium bond portfolios are nonsensical and imply a trading volume that vastly exceeds observed trading volume on financial markets instead portfolios that combine bond ladders with a market portfolio of equity assets are nearly optimal investment strategies the welfare loss of these simple investment strategies when compared to the equilibrium portfolio converges to zero as the length of the bond ladder increases this article therefore provides a rationale for naming bond ladders as a popular bond investment strategy

multiple steady states and endogenous fluctuations with increasing returns to scale in production abstract the purpose of this paper is to study the influence of the elasticity of capital labor substitution and of the labor supply elasticity on the existence of multiple pareto ranked stationary equilibria local indeterminacy bifurcations and expectations driven fluctuations in economies with external and internal increasing returns to scale in production this is done through general geometrical methods that do not depend upon particular specifications for preferences and technology for the sake of concreteness the analysis focuses on the model with heterogeneous agents and financial constraints presented in woodford j econ theory 40 1986 128 137 and extended by grandmont pintus and de vilder capital labor substitution and competitive nonlinear endogenous business cycles crest working paper 9728 1997 to account for capital labor substitution increasing returns to scale are incorporated in two different market structures an economy with aggregate production externalities and perfectly competitive markets an economy with increasing returns internal to the firm and imperfect competition in the product s market s only journal of economic literature classification numbers c61 e32

mode of entry mode into a foreign market the case of u s mutual funds in canada abstract u s mutual fund companies offer funds in canada through two channels foreign direct investment or trade in advisement services the total value of u s controlled funds amounts to 18 of the canadian equity fund market this paper investigates how the fund level and firm level characteristics affect the channel used to enter the canadian market empirical results indicate that the funds offered through fdi are not especially successful in the u s market but are associated with dominant companies whereas the funds offered through trade in advisement services are highly successful in the u s market and are from companies with relatively few successful funds

a characterization of ramsey equilibrium abstract consider a perfect foresight equilibrium model with a single capital good a borrowing constraint and many infinitely lived households with fixed but different discount factors the steady state capital stock is held by the most patient household quart j econ 95 1980 375 382 econ j 38 1928 543 559 an example shows the total capital can exhibit an equilibrium cycle in contrast to the stability property of the one household case in the example only the most patient household saves and his income deceases in capital we give a condition implying income is increasing in capital and use it to show any equilibrium converges to the steady state

efficiency of mutual funds and portfolio performance measurement a non parametric approach abstract in finance portfolio performance assessment is an important area of research the two popular indices of performance are the jensen s alpha and the sharpe index however there are a number of shortcomings of the above measures that have been highlighted in the literature we propose a new measure of performance that seeks to address the limitations of the earlier indices the new index is calculated by employing a well known method in operations research called data envelopment analysis we show the benefits of the proposed approach and assess the performance of mutual funds we compare the results with traditional indices of performance an interesting result we obtain is that the mutual funds are all approximately mean variance efficient

poverty traps indeterminacy and the wealth distribution we consider a one sector growth model in continuous time with a production externality and endogenous labor supply there is a continuum of households who have identical preferences but differ with respect to their initial wealth we show that there exist economies such that an indeterminate steady state exists for some wealth distribution but not for others a second result is that a redistribution of wealth may drive the economy from a steady state with strictly positive output to a poverty trap in which output converges asymptotically to zero these results indicate that differences in the wealth distribution may be responsible for drastic differences in the long run standard of living journal of economic literature classification numbers d31 d50 o41

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

media legitimation effects in the market for initial public offerings in this study we argue that media provided information affects investors impressions of newly public firms in 225 initial public offerings ipos the volume of mediaprovided information had a negative diminishing relationship with underpricing and a positive diminishing relationship with stock turnover on the first day of trading the relationship between the tenor of media provided information and underpricing increases at a nonlinear rate and decreases similarly for turnover findings provide important evidence that publicly available information not only reflects ipos legitimacy but also adds to their legitimacy and influences investor behavior in the last 20 years an increasing amount of research on markets has been conducted from a social constructionist perspective emphasizing how social structures enhance the flow of useful and credible information that market participants use to reduce the uncertainty of market exchanges e g aldrich fiol 1994 zuckerman 1999 further recent organizational research has begun to stress the influence of information intermediaries such as financial analysts and the media on mar

the rationality of asset allocation recommendations the popular finance literature describes the asset allocation decision as one of the most important factors in determining investment performance this article reviews the implications of modern portfolio theory for the asset allocation decision and then examinesthe recommendations of some leading financial experts to see if they are consistent with theory

portfolio preferences of foreign institutional investors the authors examine the relationship between foreign investment and the attributes of emerging market countries and firms in which investment is made their findings indicate that countries with higher levels of economic development and floating exchange rate regimes tend to have greater ability to obtain foreign capital after controlling for the country s level of economic development they find that firms in countries with stronger shareholder rights and legal framework attract more foreign capital the authors also find that foreign institutions allocate more of their assets to firms with better corporate governance after controlling for other country and firm attributes the main firm level measures of corporate governance are derived from accounting quality variables their results imply that steps can be taken both at the country and the firm level to create an environment conducive to foreign portfolio investment the analysis is based on a unique dataset consisting of equity positions of u s mutual funds in emerging markets

a study of monthly mutual fund returns and performance evaluation techniques this paper empirically contrasts the jensen measure the positive period weighting measure developed in grinblatt and titman 1989b and a measure developed from the treynor mazuy 1966 quadratic regression on a sample of 279 mutual funds and 109 passive portfolios using a variety of benchmark portfolios the study finds that the measures generally yield similar inferences when using the same benchmark and that inferences can vary even from the same measure when using different benchmarks this paper also analyzes the determinants of mutual fund performance tests of fund performance that employ fund characteristics such as net asset value load expenses portfolio turnover and management fee are reported these tests surprisingly suggest that turnover is significantly positively related to the ability of fund managers to earn abnormal returns

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

endowments stability and fluctuations in og models abstract in the present paper we consider a stationary overlapping generations model with many commodities and many different consumers and investigate how the distribution of endowments influences the dynamical properties of the model such as stability of steady states and existence of cycles our main results are 1 1 preferences place no restrictions on stability properties of steady states 2 2 cycles exist for all aggregate savings real or nominal and 3 3 equilibria of economies with equilibria close to a no trade equilibrium with constant prices are either steady states or equilibria which converge to a steady state in backward time and another steady state in forward time these results are obtained generically in utility functions and do not depend on whether the utility functions are of the discounted form or not

efficiency with costly information a study of mutual fund performance 1965 1984 if information is costly to collect and implement then it is efficient for trades by informed investors to occur at prices sufficiently different from full information prices to compensate them for the cost of becoming informed this notion is tested by evaluating investment performance in the mutual fund industry over a 20 year period the study finds evidence that is consistent with optimal trading in efficient markets risk adjusted returns in the mutual fund industry net of fees and expenses are comparable to returns available in index funds and portfolio turnover and management fees are unrelated to fund performance

framing controversial actions regulatory focus source credibility and stock market reaction to poison pill adoption we contribute to the research on organizational accounts by examining the role of different framing languages and the credibility of the frame articulator on justifying controversial organizational actions drawing on regulatory focus theory and the literature on source credibility we develop novel arguments as to how a gains versus nonlosses framing and the perceived credibility of the speaker influence stakeholder responses as well as how the effectiveness of these aspects is influenced by context we test our arguments using data on the framing of the adoption of poison pills by u s firms between 1983 and 2008 using content analysis and an event study we find that a gains framing aligned with the dominant institutional logic leads to a positive stock market reaction while statements emanating from speakers with potentially self serving interests negatively affect the stock market reaction our findings further show that the effectiveness of framing and source credibility are dependent on contextual attributes such as speaker visibility prior performance and practice prevalence

portfolio performance evaluation old issues and new insights this article presents a model that provides insights about various measures of portfolio performance the model explores several criticisms of these measures these include the problem of identifying an appropriate benchmark portfolio the possibility of overestimating risk because of market timing ability and the failure of informed investors to earn positive risk adjusted returns because of increasing risk aversion the article argues that these need not be serious impediments to performance evaluation

determinants of flows into retail international equity funds diversification benefits appear to be a major reason why investors choose international equity funds funds less correlated with the us market tend to receive higher flows from investors in addition investors prefer funds that invest in a diversified portfolio of securities from different regions in the world to funds that focus only on a specific region risk adjusted return is shown to exert greater effect on flows into international equity funds than raw return international equity funds from fund families offering a greater number of investment objectives also receive higher flows on the other hand international equity fund investors do not appear to be sensitive to expenses or exchange rates

when cheaper is better fee determination in the market for equity mutual funds abstract in this paper we develop a model of the market for equity mutual funds that captures three key characteristics of this market first there is competition among funds second fund managers ability is not observed by investors before making their investment decisions third some investors do not make optimal use of all available information the main results of the paper are that 1 price competition is compatible with positive mark ups in equilibrium and 2 worse performing funds set fees that are greater or equal to those set by better performing funds these predictions are supported by available empirical evidence

investor behavior and the persistence of poorly performing mutual funds abstract recent studies tentatively suggest some mutual funds have near term persistent positive performance but reinforce earlier findings that other funds have long term persistent negative performance in this paper we ask how consistently underperforming mutual funds are able to persist nevertheless we compare two models one model incorporates the assumption that investors choose funds on the basis of past risk adjusted returns the other model motivated by the representativeness heuristic assumes investors react to recent returns without considering the predictive validity of returns our analysis of a sample of no load growth funds supports a model of investor behavior combining two extremes when choosing among funds investors respond to returns ignoring differences in systematic risk and expenses but upon choosing a fund they stick fast forsaking the sensitivity to returns displayed in evaluating funds

country and industry concentration and the performance of international mutual funds abstract we examine the relation between country and industry portfolio concentration and performance using a data set of international equity mutual funds when sorted by concentration measures funds in the most concentrated quintile outperform those in the most diversified quintile by 0 16 and 0 30 monthly in country and industry dimensions respectively further analysis shows that the superior performance of concentrated funds is largely driven by industry rather than country concentration suggesting the existence of global industry private information finally we show that industry concentrated funds rotate top holding industries less frequently than their diversified counterparts and that the industries these funds purchase subsequently outperform the industries they sell

are small stock returns achievable returns of the small company universe an examination of actual small company passive portfolios sheds some light on this issue these small stock portfolios deliver the returns of their targets within statistically acceptable bounds there are however significant differences across their returns and these differences appear to be related to management style pure indexers try to maintain perfect index like portfolio compositions minimizing trading cost is of secondary importance to them these portfolios have the lowest returns at the other extreme some portfolios emphasize minimizing trading costs at the expense of perfect portfolio composition these portfolios have the highest returns

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

how golden parachutes unfolded diffusion and variation of a controversial practice we contribute to a growing focus on variation in diffusion processes by examining the ways in which contested practices are modified as they spread among adopters expanding on prior diffusion accounts we argue that the extensiveness and similarity of a practice will vary in response to both population and organization level mechanisms to examine these issues we study variation in golden parachute contracts a controversial corporate governance practice that emerged and spread widely during the hostile takeover wave of the 1980s using a concept network approach to analyze the composition of parachute plans we find evidence of mechanisms that both increase and decrease extensiveness and variation of golden parachutes our findings hold implications for accounts of practice diffusion over contested terrain by revealing substantial variation in the course of diffusion

efficiency with costly information a reinterpretation of evidence from managed portfolios we investigate the informational efficiency of mutual fund performance for the period 1965 84 results are shown to be sensitive to the measurement of performance chosen we find that returns on s p stocks returns on non s p stocks and returns on bonds are significant factors in performance assessment once we correct for the impact of non s p assets on mutual fund returns we find that mutual funds do not earn returns that justify their information acquisition costs this is consistent with results for prior periods coauthors are martin j gruber sanjiv das and matthew hlavka article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the social construction of market value institutionalization and learning perspectives on stock market reactions this study advances a social constructionist view of financial market behavior the paper suggests that the market s reaction to particular corporate practices such as stock repurchase plans are not as financial economists contend simply a function of the inherent efficiency of such practices rather stock market reactions are also influenced by the prevailing institutional logic and the degree of institutionalization of the practice the theory first predicts that the emergence of the agency perspective on corporate governance in the mid 1980s represented a powerful new institutional logic that would lead the market to reverse its prior aggregate reaction to stock repurchase plans in the united states the paper then considers the potential for institutional decoupling of repurchase plans and develops competing hypotheses about how the market value of these policies might have changed as more firms formally adopted but did not implement the plans over time in contrast to a financial economic pers

an asset allocation puzzle this paper examines popular advice on portfolio allocation among cash bonds and stocks it documents that this advice is inconsistent with the mutual fund separation theorem which states that all investors should hold the same composition of risky assets in contrast to the theorem popular advisors recommend that aggressive investors hold a lower ratio of bonds to stocks than conservative investors the paper explores various possible explanations of this puzzle and finds them unsatisfactory copyright 1997 by american economic association

indeterminacy and endogenous fluctuations with arbitrarily small externalities abstract in this paper we study the occurrence of local indeterminacy endogenous fluctuations and bifurcations in a simple non monetary 2 period overlapping generations economy in which people do not consume when young with capital labor substitution elastic labor supply and productive externalities we show that in contrast with the local dynamics generated by many one sector models of capital accumulation studied in the current literature local indeterminacy and therefore stationary stochastic equilibria driven by self fulfilling beliefs sunspots as well as multiple stationary equilibria are pervasive phenomena when the elasticity of input substitution is large and when the size of externalities is arbitrarily small we also demonstrate that when externalities are arbitrarily small the cobb douglas production function often used for its analytical tractability in many models is structurally unstable it is always associated with uniqueness of the steady state but any small perturbation of the elasticity of input substitution leads to the existence of two stationary equilibria which may be close to each other with the consequence that the dynamics may be qualitatively very different from those originated in the unit elasticity case journal of economic literature classification numbers e32 c62

the performance of us equity mutual funds the paper examines the performance of us no load equity mutual funds fund performance is derived using stochastic frontier analysis for a flexible functional form this analysis allows us to derive parametric estimates of efficiency scores for each fund in our sample for the first time in the literature our results indicate that us no load equity funds display varying levels of efficiency over time but also depending on size and on investment style robustness analysis reaffirm the efficiency scores remain consistent across different selections of inputs and outputs as well as the underlying distribution of the return having estimated each fund s efficiency in the sample we unveil their underlying dynamics also with respect to risk and operational characteristics such as flows assets and morningstar star ratings panel var estimations reveal that the response of funds efficiency to a shock in risk is positive and substantial some evidence of reverse causality is also observed finally we extend our analysis to investigate the relationship between funds performance and key covariates across subgroups defined by size

the color of money and the nature of value greenbacks and gold in postbellum america money measures value in market economies money s own value is socially constructed since people attribute worth to a medium whose physical characteristics are essentially irrelevant to its monetary role money works best when it can be taken for granted and its social construction is hidden during the greenback era two monetary alternatives gold based money and paper money were debated which raised many questions about the nature of monetary value using a macrocultural approach we analyze the rethoric of greenbacker and bullionist writings to study the social construction and deconstruction of a taken for granted institution

equilibrium cycles in an overlapping generations economy with production abstract perfect foresight equilibrium trajectories of an overlapping generations model with production may include stable or unstable invariant closed curves these orbits are detected using the hopf bifurcation theorem where the parameter of bifurcation is purely technological the paper also proves that there is a stabilization policy that completely eliminates the cycle finally using a c e s production function it is shown that the range of values of the elasticity of substitution between capital and labor for which cycles may exist is bounded above

indeterminacy in dynamic models when diamond meets ramsey abstract we consider an aggregate two periods overlapping generations model with endogenous labor consumption in both periods of life homothetic preferences and productive external effects coming from the average capital and labor we show that under realistic calibrations of the parameters in particular a large enough share of first period consumption over the wage income local indeterminacy of equilibria cannot occur with capital externalities alone it can nevertheless occur when there are only even very small vanishing labor externalities provided that the elasticity of capital labor substitution and the wage elasticity of the labor supply are large enough we also show that if labor externalities are slightly stronger but still small enough to be plausible and the elasticity of labor supply is larger local indeterminacy occurs in a cobb douglas economy finally we show that a locally indeterminate steady state is generically characterized by an under accumulation of capital it follows therefore that while agents live over a finite number of periods the conditions for the existence of locally indeterminate equilibria are very similar to those obtained within infinite horizon models and that from this point of view diamond meets ramsey

performance of ethical mutual funds in spain sacrifice or premium there is currently much debate in the economic literature about whether ethical investment involves a financial sacrifice or premium one of the most common methods of testing this compares the financial performance of ethical investment funds with that of other funds not considered socially responsible or ethical the majority of these research studies evaluate the performance of the ethical funds according to classic measures whereby different financial markets in different countries and for different periods of time serve as reference for evaluation the ultimate conclusion of all of these studies is that there are no significant differences between the performance results of one type of funds and the other in spain ethical investment funds are still an incipient sector of investment to date the spanish market has not been included in any type of analysis of these characteristics therefore the main objective of this article is to compare the financial performance of ethical investment funds to that of other funds in the spanish retail market we propose the aggregate type of analysis as the spanish ethical investment funds have experienced a weaker development in comparison to those of other developed countries in the first step we suggest the financial performance to be compared by style analysis since the asset distribution of the spanish social return investment sri funds differs from the european trend in particular we use the multifactor regression model with style benchmarks we found that their financial performance is in all cases superior or similar to that achieved by the rest of the funds in the second step to achieve a more robust and homogeneous comparison we used the bootstrap method comparing ethical and non ethical fund subsamples by homogeneous groups no significant differences between these two types of funds have been found thus if we assume the positive o neutral effect of ethical investment on investor utility in the retail spanish market the financial and social performance fsp of ethical funds will be in aggregate superior to the fsp achieved by conventional funds in conclusion the financial performance of ethical mutual funds in spain is no sacrifice

wealth inequality and dynamic stability abstract we explore the link between wealth inequality and stability in a two sector neoclassical growth model with heterogeneous agents we show that when the inverse of absolute risk aversion or risk tolerance is a strictly convex function wealth inequality is a factor that favors instability in the opposite case inequality favors stability our characterization also shows that whenever absolute risk tolerance is linear as when preferences exhibit hyperbolic absolute risk aversion hara wealth heterogeneity is neutral

dynamic asset allocation for stocks bonds and cash closed form solutions for hara optimal portfolios are obtained in a dynamic portfolio optimization model in three assets stocks bonds and cash in a vasicek type model of stochastic interest rates with correlated stock prices the hara is a buy and hold combination of a zero coupon bond with maturity matching the investor s horizon and a crra mutual fund this simple characterization facilitates insights about investor behavior over time and provides explanations on the rational use of convex versus concave investment strategies the model illuminates clearly the role of the different market parameters and relative risk aversion in portfolio strategies

large shareholders and the monitoring of managers the case of antitakeover charter amendments this paper examines the role of large shareholders in monitoring managers when they propose antitakeover charter amendments we attempt to distinguish between two competing hypotheses the active monitoring hypothesis and the passive voting hypothesis we find a statistically significant positive relation between institutional ownership and the stockholder wealth effects of various types of amendments after controlling for ownership concentration among institutions managerial ownership and firm size our empirical evidence lends support to the active monitoring hypothesis proposed by demsetz 1983 and shleifer and vishny 1986 that the existence of large shareholders leads to better monitoring of managers

the value of asset allocation advice evidence from the economist s quarterly portfolio poll this study analyzes the economic importance of portfolio advice for an investor with an international and multiple asset investment strategy we construct portfolios based upon the asset allocation and security market advice of major international investment bankers and analyze the performance using weight based techniques our results indicate that portfolio advisers are not able to outperform passive benchmarks they do not realize superior performance either through appropriate timing or selection skills apparent market timing skills as measured by the portfolio change measure are to a large extent an artifact caused by serial correlation in the return indices used likewise the apparent short run performance persistence is more due to the serial correlation in returns than to active portfolio selection strategies

a theory of optimal timing and selectivity abstract we solve an extended optimal portfolio problem in continuous time for any horizon where we allow the mean and variance of returns to be stochastic introduce fund flows to and from the portfolio permit differential investor preferences for dividend versus growth stocks and allow the investor to buy costly information on the random mean and variance of the portfolio to improve his portfolio choice set this model provides analytical results especially useful in understanding the expenditure on timing and selection information a mutual fund undertakes in attempting to improve performance relative to a benchmark we examine this proposition for growth and income funds long and short investment horizons and also account for fund inflows and outflows we also combine our model of costly learning with the traditional model of incomplete information to understand the interaction between costly and costless learning the approach taken is a purely theoretical one and in this regard the paper is normative in spirit we anticipate that the propositions in this paper will provide two byproducts i a framework for fund managers to think about how to allocate information expenses between timing and selection skills and ii give academics especially empirical researchers a theoretical backdrop against which to examine the mutual fund industry

a robust nonparametric approach to evaluate and explain the performance of mutual funds the topic of the measurement of mutual funds performance is receiving an increasing interest both from an applied and a theoretical perspective beside the traditional financial literature a growing body of studies has started to apply the tools of frontier analysis for benchmarking comparisons in portfolio analysis our paper contributes to this literature proposing a robust nonparametric approach for analysing mutual funds it is based on the concept of order m frontier cazals c florens j p simar l 2002 nonparametric frontier estimation a robust approach journal of econometrics 106 1 25 and on a probabilistic approach daraio c simar l 2005 introducing environmental variables in nonparametric frontier models a probabilistic approach journal of productivity analysis 24 1 93 121 to find out the factors explaining mutual funds performance within this framework a decomposition of conditional efficiency is proposed and its usefulness for economic interpretation analysed our approach is illustrated by using us mutual funds data grouped for category by objective economies of scale slacks and market risks are investigated a comparison of traditional nonparametric and robust performance measures is also offered

takeover threats and managerial myopia this paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long term interests in order to boost current profits if stockholders are imperfectly informed temporarily low earnings may cause the stock to become undervalued increasing the likelihood of a takeover at an unfavorable price hence the managerial concern with current bottom line the magnitude of the problem depends on a variety of factors including the attitudes and beliefs of shareholders the extent to which corporate raiders have inside information and the degree to which managers are concerned with retaining control of their firms

social network effects on the extent of innovation diffusion a computer simulation of innovation diffusion no longer focus exclusively on explaining the rate at which innovations diffuse or the sequence in which they are adopted they also focus on explaining why certain innovations diffuse extensively be coming de facto standards whereas others do so partially or not at all many of these theories specify a bandwagon process a positive feedback loop in which increases in the number of adopters create stronger bandwagon pressures and stronger bandwagon pressures in turn cause increases in the number of adopters factors affecting if and how many times this feedback loop cycles explain if and how many potential adopters jump on a bandwagon we argue that one important factor has not yet been incorporated into theories explaining bandwagons extent the structure of social net works through which potential adopters of innovations find out information about these innovations which can cause them to adopt these innovations we advance a theory of how the structure of social networks affects bandwagons extent we propose that both the number of network links as well as small seemingly insignificant idiosyncracies of their structures can have very large effects on the extent of an innovation s diffusion among members of a social network

corporate takeovers the efficiency arguments in recent years the tender offer takeover has been praised and damned with a ferocity suggesting that the survival of capitalism is at stake the truth as in most disputes with substantial metaphysical content is more prosaic some takeovers enhance economic efficiency some degrade it and the balance of effects though not fully known is most likely a close one in this essay i try to lay bare the debate s foundations and bring it back to earth with an injection of evidence

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

optimal contracts in a continuous time delegated portfolio management problem this article studies the contracting problem between an individual investor and a professional portfolio manager in a continuous time principal agent framework optimal contracts are obtained in closed form these contracts are of a symmetric form and suggest that a portfolio manager should receive a fixed fee a fraction of the total assets under management plus a bonus or a penalty depending upon the portfolio s excess return relative to a benchmark portfolio the appropriate benchmark portfolio is an active index that contains risky assets where the number of shares invested in each asset can vary over time rather than a passive index in which the number of shares invested in each asset remains constant over time fund managers compensation schemes in a delegated portfolio management setting have been of special interest to both academics and practitioners academic interest stems in part from the rapid growth of managed funds over the last two decades gompers and metrick 1998 report that by december 1996 mutual funds pension funds and other financial intermediaries held discretional control over more than half of the u s equity market it is thus of importance to study the impact of institutional trading on asset prices and to integrate into one model both asset pricing and delegated portfolio management compensation as advocated by brennan 1993 allen and santomero 1997 and allen 2001 it is also important to understand the relationship between a manager s trading strategies and his implicit incentives or career concerns see e g brown harlow and starks 1996 brown goetzmann and park 1997 chevalier and ellison 1999 and chen and pennacchi 2000 these concerns include internal promotion from a small to a large fund higher outside offers and the flow of money through the fund under management 1 the importance of fund manager compensation is also underscored by congressional passage in 1970 of the amendment to

asset allocation dynamics and pension fund performance using a data set on more than 300 u k pension funds asset holdings this article provides a systematic investigation of the performance of managed portfolios across multiple asset classes we find evidence of slow mean reversion in the funds portfolio weights toward a common time varying strategic asset allocation we also find surprisingly little cross sectional variation in the average ex post returns arising from the strategic asset allocation market timing and security selection decisions of the fund managers strategic asset allocation accounts for most of the time series variation in portfolio returns while market timing and asset selection appear to have been far less important copyright 1999 by university of chicago press

ceos outside employment opportunities and the lack of relative performance evaluation in compensation contracts although agency theory suggests that firms should index executive compensation to remove market wide effects i e rpe there is little evidence to support this theory oyer 2004 journal of finance 59 1619 1649 posits that an absence of rpe is optimal if the ceo s reservation wages from outside employment opportunities vary with the economy s fortunes we directly test and find support for oyer s 2004 theory we argue that the ceo s outside opportunities depend on his talent as proxied by the ceo s financial press visibility and his firm s industry adjusted roa our results are robust to alternate explanations such as managerial skimming oligopoly and asymmetric benchmarking

do ethics imply persistence the case of islamic and socially responsible funds we analyse the performance persistence of islamic and socially responsible investment sri mutual funds we adopt a multi stage strategy in which in the first stage partial frontiers approaches are considered to measure the performance of the different funds in the sample in the second stage the results yielded by the partial frontiers are plugged into different investment strategies based on a recursive estimation methodology whose persistence performance is evaluated in the third stage of the analysis results indicate that for both types of funds performance persistence actually exists but only for the worst and most notably best funds this result is robust not only across methods and different choices of tuning parameters within each method but also across both sri and islamic funds although in the case of the latter persistence was stronger for the best funds the persistence of sri and islamic funds represents an important result for investors and the market since it provides information on both which funds to invest in and which funds to avoid last but not least the use of the aforementioned techniques in the context of mutual funds could also be of interest for the non conclusive literature

combining momentum with reversal in commodity futures this paper examines profitable trading strategies that jointly exploit momentum and reversal signals in commodity futures while the single sort momentum strategies returns 11 14 per annum on average a consistent reversal pattern of momentum profits is pronounced from 12 to 30 months after portfolio formation combining the observed reversal pattern with the momentum signal our double sort strategy returns 20 24 per annum which significantly outperforms single sort strategies the proposed strategy is robust to seasonality effects and sample adjustments in commodity futures the profitability of the double sort strategy cannot be explained by standard risk factors term structure market volatility investor sentiment data mining or transaction costs but appears to be related to global funding liquidity as a consequence the double sort strategy in commodity futures may be employed as a portfolio diversification tool

takeover defenses and wealth effects on securityholders the case of poison pill adoptions abstract this is the first study to examine the valuation effects of any antitakeover amendment on both bondholders and stockholders we present new evidence documenting that on average there is a significant wealth loss experienced by bondholders at poison pill adoption announcement while stockholders are unaffected our finding of significant bondholder losses is consistent with the proposed negative signal hypothesis we document results which indicate that bondholders correctly anticipate the degree of leverage increase at the time of the announcement we also show that the proportion of insider ownership is negatively related to bondholder wealth effect at announcement this supports the notion that higher insider manager ownership leads to a greater alignment of manager stockholder interests while increasing the stockholder bondholder agency costs long run analysis of leverage and performance measures reveal that pill adopting firms are not under leveraged as compared to their industry rivals however supporting the negative signal hypothesis the leverage of sample firms rises significantly after the pill adoption performance measures reveal that sample firms significantly underperform their industry cohorts this result suggests that poison pill adoptions are motivated by poor managers attempting to immunize themselves from the disciplinary actions of the corporate control market

the performance of bond mutual funds using linear and nonlinear models the authors examine two samples of bond funds one sample designed to eliminate survivorship bias and a second much larger sample overall and for subcategories of bond funds they find that bond funds underperform relevant indexes postexpenses the authors results are robust across a wide choice of models they find that on average a percentage point increase in expenses leads to a percentage point decrease in performance the nonlinear model weights closely match actual composition weights the authors find no evidence of predictability using past performance to predict future performance for their unbiased sample copyright 1993 by university of chicago press

a reexamination of the market timing and security selection performance of mutual funds an extended and correctly specified version of the treynor mazuy tm model is used to examine the market timing and stock selection abilities of domestic equity mutual funds this extended model controls for the inclusion of non s p 500 assets in mutual fund portfolios we document positive and significant market timing abilities for 633 mutual funds during the 1984 94 period this finding is in sharp contrast to the negative market timing abilities found when using the original tm model which does not control for non s p 500 assets security selection abilities are significantly positive and cross sectional correlations between market timing and selectivity are significantly negative the monotonic correlation between turnover and market timing is positive and that between turnover and selectivity is negative neither of these findings is evident with the original tm model or with traditional linear parametric measures of correlation

on timing and selectivity the dichotomy between timing ability and the ability to select individual assets has been widely used in discussing investment performance measurement this paper discusses the conceptual and econometric problems associated with defining and measuring timing and selectivity in defining these notions we attempt to capture their intuitive interpretation we offer two basic modeling approaches which we term the portfolio approach and the factor approach we show how the quality of timing and selectivity information can be identified statistically in a number of simple models and discuss some of the econometric issues associated with these models in particular a simple quadratic regression is shown to be valid in measuring timing information

a true american system of finance frame resonance in the u s labor movement 1866 to 1886 principles and philosophy 1 revolutionary american rhetoric the gold standard is associated with aristocracy kings landlords privilege inequality before the law monied aristocracy 46 18 8 2 gold standard gives control of government to bankers financiers bondholders 21 8 6 3 democrats and republicans are both corrupt 35 14 3 4 reference to jefferson 4 1 6 5 reference to jackson or locofocoism 5 2 0 6 gold standard leads to slavery free labor 11 4 5 7 small ownership or middle class is good wage labor is bad 7 2 9 8 growing polarization between rich and poor is bad 13 5 3 9 a strikes are bad should be used as a last resort 11 4 5 b strikes are good necessary 0 0 10 a we don t threaten property only future accumulations i e interest payments 4 1 6 b we threaten property 0 0 specific program and demands 11 free soil land to those willing to till it 21 8 6 12 support for co ops 20 8 2 13 support for 8 hour movement 14 5 7 14 we need a fairer tax system don t exempt bondholders 27 11 0 why workingmen should support greenbacks 15 greenbacks won t hurt workers through inflation because wartime greenbacks which depreciated weren t real greenbacks 4 1 6 16 greenbacks will make co ops possible 2 8 17 greenbacks should be used to create employment through public works government employment 3 1 2 18 greenbacks are good for workers because workers are debtors 2 8