dusenberry s ratcheting of consumption optimal dynamic consumption and investment given intolerance for any decline in standard of living duesenberry s ratcheting consumption demand is derived as a feature of the optimal dynamic consumption and investment policy given extreme habit formation that prevents consumption from falling over time preferences are in effect non time separable extended real valued von neumann morgenstern preferences consumption increases each time wealth reaches a new maximum risky investment is proportional to the excess of wealth over the perpetuity value of current consumption extensions constrain the net rate of decrease in consumption with a constant other than zero add more consumption goods and constrain on the maximal holding of the risky asset as a proportion of wealth these strategies may be useful for the management of university endowments participatory investment accounts and risky arbitrage funds

reversing disbursement rates to estimate stationary wealth processes for endowments with recursive preferences endowments have been accused of hoarding their wealth however the theoretically ideal spending plan remains unclear and in practice endowments follow a range of rules here we derive and estimate the optimal spending plans of an infinitely lived charity or endowment with an epstein zin weil utility function given general markovian returns to wealth we analyse two special cases first where spending is a power function of last period s wealth and second where the endowment uses payout smoothing via non linear least squares we estimate the optimal spending rate and the elasticity of inter temporal substitution for an endowment with a typical diversified portfolio and for a portfolio of hedge funds in a new approach we use maximum entropy methods to characterize the returns distribution of an endowment whose spending plan conforms with the optimality condition we confirm that the estimated returns distribution is largely consistent with the optimal spending plan

sustainable spending in a lower return world investors whether corporate pensions public pensions foundations endowments or individuals need to focus on sustainable spending which is key to effective strategic planning to assess sustainable spending planners must start with the three building blocks of return for most assets income growth and revaluation changes in the yield offered by that investment analysis based on these components of historical equity and bond returns shows that the long term investor cannot expect to receive in the future the commonly assumed 8 9 percent returns with stock yields below 2 percent and bond yields of 5 percent even a 5 percent spending rate may not be sustainable without future contributions from the investor

temporal aggregation and estimation of inventory functions abstract in this paper we extend the analysis of the effects of aggregation on the estimated speed of adjustment in inventory models into two directions first we try to find out if lovell s 1993 conclusions regarding the effects of aggregation on the speed of adjustment hold a when real firm data rather than experimental data are used b when the model is modified or when models other than the flexible accelerator are used secondly we examine whether temporal aggregation also leads to underestimation when disaggregated nonseasonally adjusted data are used the evidence we provide gives strong support to mundlak s and zellner s conjectures cited in christiano and eichenbaum 1987 that temporal aggregation leads to downward bias in the estimated speed of adjustment

the floor leverage rule for retirement the floor leverage rule is a spending and investment strategy designed for retirees who can tolerate investment risk but insist on sustainable spending the rule calls for purchasing a spending guarantee with 85 of wealth and investing the remaining 15 in equities with 3 leverage surprisingly this leverage is a tool for managing risk the authors compare the rule with some popular strategies illustrate it for a variety of retiree preferences and evaluate its historical performance

consumption and bubbles abstract we show that an unbounded number of consumption dates is necessary to support an asset pricing bubble we work in a continuous time model where the number of trade dates is infinite but the number of consumption dates is flexible and can be chosen to be uniformly bounded finite almost surely or infinite market clearing together with monotone preferences for consumption limits the properties of bubbles and provides restrictions on wealth constraints in the special case of a uniformly bounded number of consumption dates assets in positive net supply cannot have asset pricing bubbles and wealth constraints cannot allow limited arbitrage

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

withdrawal location with progressive tax rates optimal withdrawal strategies are developed for retirees with multiple types of tax advantaged savings accounts in an environment of progressive tax rates the ability to convert pretax funds in traditional iras at low tax rates substantially increases investors residual accumulations and withdrawal sustainability specifically informed withdrawal location strategies in which traditional ira distributions can be applied against exemptions deductions and lightly taxed tax brackets can increase residual accumulations by more than 1 million in these strategies the optimal tax bracket through which an investor should take distributions is directly related to the investor s wealth level

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

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

does the time shape of inventory data hold clues on inventory behaviour abstract this paper tries to show that there may be a serious problem in the way inventory data are observed and processed inventory cycles may be asymmetric and the asymmetries may switch directions over the business cycle that is inventory holdings may follow a strongly non linear time path that cannot be represented by periodic observations that are appropriate for stationary processes it may lead to a cumulative error with passage of time in the difference between the actual inventory levels and the data we think monitor them it has been shown that temporal aggregation leads to a downward bias in the estimated speed of adjustment of the flexible accelerator model 1 2 assuming this model correctly describes inventory behaviour and that the objective is to recover the model in the data this evidence raises the question why is there this estimation bias could it be that the bias results from ignoring the time shape of the data if this is true more frequent observations could reduce that bias this paper tries to show that the time shape of inventory data may have a significant effect on what we observe with periodic readings

inefficient dynamic portfolio strategies or how to throw away a million dollars in the stock market a number of portfolio strategies followed by practitioners are dominated because they are incompletely diversified over time the payoff distribution pricing model is used to compute the cost of following undiversified strategies simple numerical examples illustrate the technique and computer generated examples provide realistic estimates of the cost of some typical policies using reasonable parameter values the cost can be substantial and should not be ignored by practitioners a section on generalizations shows how to extend the analysis to term structure models and other general models of returns this abstract was borrowed from another version of this item

impact of informal institutions on the prevalence strategy and performance of family firms a meta analysis family controlled firms fcfs prevalence strategies and performance differ across countries we explain these differences through the lens of informal institutions suggesting that different countries have different levels of appreciation for family business to capture this effect we introduce the construct of family business legitimacy fbl and an associated index fbli we empirically measure fbli scores for 83 countries spanning both developed and emerging economies by combining meta analytic and archival data we show that fcfs prevail follow unique strategies and outperform non fcfs in countries with high fbli scores as a new contingency variable fbl advances the literature on the informal institutional embeddedness of organizations and family business

involvement work systems and operational effectiveness exploring the moderating effect of national power distance work practices that involve employees are generally assumed to be less effective in more hierarchical societies where employees values are not aligned with such practices in this study we challenge this assumption by developing a theory that differentiates between the symbolic and instrumental aspects of involvement work systems and proposing that their symbolic impact will be more pronounced in egalitarian societies whereas their instrumental impact will be more pronounced in hierarchical societies in particular we draw on the symbolic action perspective and theories on culture to test the relationship between involvement work systems and operational effectiveness by incorporating organizational climate of participation and national cultural differences in power distance using multi source multilevel data from 260 facilities of a multinational company operating in 22 countries we found that the mediated relationship between involvement work systems and operational effectiveness through climate of participation i e the symbolic impact was stronger among facilities located in lower power distance societies on the other hand the direct relationship between involvement work systems and operational effectiveness i e the instrumental impact was stronger in higher power distance societies overall our study resolves a seeming cultural dilemma with regard to how involvement work systems operate cross culturally

a sustainable spending rate without simulation financial commentators have called for more research on sustainable spending rates for individuals and endowments holding diversified portfolios we present a forward looking framework for analyzing spending rates and introduce a simple measure stochastic present value that parsimoniously meshes investment risk and return mortality estimates and spending rates without resorting to opaque monte carlo simulations applying it with reasonable estimates of future returns we find payout ratios should be lower than those many advisors recommend the proposed method helps analysts advise their clients how much they can consume from their savings whether they can retire early and how to allocate their assets

convergence and divergence of paternalistic leadership a cross cultural investigation of prototypes paternalistic leaders provide care nurturance and guidance to employees in their professional and personal lives in a parental manner and in exchange expect loyalty and deference from employees this study aims at investigating how the paternalistic leadership pl prototype converges and diverges with prototypes of transformational authoritarian participative and nurturant task leadership ntl in six countries representing high power distance and collectivism china turkey and pakistan and low power distance and individualism the united states germany and the netherlands a total of 1272 employees from six countries participated in this study findings revealed that the pl prototype converged more strongly with authoritarian leadership and ntl in hierarchical and collectivistic cultures than in egalitarian and individualistic ones the relationship of the pl prototype with that of transformational and participative leadership was similar across cultures theoretical and managerial implications of these findings for international business are discussed

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

most people need longevity insurance rather than an immediate annuity an immediate annuity is precisely the sum of two parts one is a deferred annuity commencing at a specified date with no death benefit before that date the remainder before the deferred annuity commences is a reverse whole life insurance policy with limited premiums that reverse policy is effectively one underwritten by the annuitant with the insurance company as beneficiary a policy that benefits few retirees however the deferred annuity called longevity insurance in the literature is a valuable component of a retirement portfolio that supplements components that focus on safety and growth

theory of constant proportion portfolio insurance abstract we study constant proportion portfolio insurance cppi a dynamic strategy that maintains the portfolio s risk exposure a constant multiple of the excess of wealth over a floor up to a borrowing limit we use this simple rule to investigate how transaction costs and borrowing constraints affect portfolio insurance type strategies absent transaction costs cppi is equivalent to investing in perpetual american call options and is optimal for a piecewise hara utility function with a minimum consumption constraint as the multiple increases the payoffs under cppi approach those of a stop loss strategy the expected holding period return is not monotonic in the multiple and a higher expected return can be obtained under cppi than with a stop loss strategy

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

spending retirement on planet vulcan the impact of longevity risk aversion on optimal withdrawal rates corrected july 2011 recommendations from the media and financial planners regarding retirement spending rates deviate considerably from utility maximization models this study argues that wealth managers should advocate dynamic spending in proportion to survival probabilities adjusted up for exogenous pension income and down for longevity risk aversion

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

evaluating spending policies in a low return environment for an endowment seeking to minimize payout variability while preserving the long run health of the institution appropriate spending policy is a crucial choice we study two competing methods for setting spending policy the moving average method and the snake in the tunnel sit approach we show that the sit approach may significantly decrease the possibility of spending reductions in the short run additionally the sit approach with 3 7 bands allows for a smooth evolution of payouts over time which enhances spending predictability while preserving the endowment s real inflation adjusted long run purchasing power

the only spending rule article you will ever need after examining an array of approaches to determining a spending rule for retirees the authors propose the annually recalculated virtual annuity each year one should spend at most the amount that a freshly purchased annuity with a purchase price equal to the then current portfolio value and priced at current interest rates and number of years of required cash flows remaining would pay out in that year investors who behave in this way will experience consumption that fluctuates with asset values but they can never run out of money

team personal life inclusion in socially versus task oriented countries a cross cultural study of chinese versus german teams team personal life inclusion team pli refers to socialization with fellow team members in the private domain while pli is an expected behavior in the socially oriented chinese work context it is generally seen as unfavorable in task oriented contexts like germany we investigate the relative impact of team pli on the performance of chinese and german teams based on data from 130 chinese and 124 german teams we show that team pli has opposing consequences in china and germany while it increases german teams performance the reverse relationship was observed for chinese teams

inventory dynamics time lags and efficiency measures abstract standard measures employed to examine efficiency such as production efficiency in manufacturing are static in nature standard methods typically employ a stock flow approach to measure turnover and delay this is a first estimate but an inadequate approach since production processes are time dependent and dynamic this study examines theoretical issues concerning the standard method of measuring efficiency indices and introduces a refined dynamic measurement methodology the standard and proposed methodologies are applied to financial data for us tire and rubber goods industry to demonstrate the empirical differences between the two measures