Abstracts - Financial Services Review

Abstracts:

Financial Services Review
Volume 1 Number 1, 1991

Individual versus Institutional Investing
(pp. 1-8) DOWNLOAD FULL-TEXT FILE
Harry M. Markowitz

ABSTRACT
This paper first describes the analytic approach that Markowitz used in developing his portfolio theory. Developing a game-of-life simulation is a parallel approach for modeling individual financial management. To develop a realistic simulator will require deciding what goals are essential to the family planning process, formulating optimizable subproblems, using technology to interpret and record decisions, and developing decision rules which prove robust in the model and can be implemented in practice.

The Optimal Allocation of Pension Fund Assets: An Individual's Perspective
(pp. 9-22) DOWNLOAD FULL-TEXT FILE
Tom L. Potts, William Reichenstein

ABSTRACT
This study asks which assets an individual should hold indirectly in a pension in order to maximize total portfolio return, where the total portfolio consists of assets held directly outside of pensions plus the pro rata share of pension assets. The answer depends upon whether the individual actively or passively manages the nonpension portion of the total portfolio. Most individuals should place high-yield stocks in the pension fund. But active investors should place low-yield growth stocks in the pension, while very passive investors should place bonds in the pension fund. Reinstatement of capital gains exclusion would usually make corporate bonds the optimal pension asset.

Life Insurance Companies as Investment Managers: New Implications for Consumers
(pp. 23-34) DOWNLOAD FULL-TEXT FILE
Robert T. Kleiman, Anandi P. Sahu

ABSTRACT
This paper examines the attractiveness of the equity portfolios of life insurance companies as an alternative investment to mutual funds. In particular, this study analyzes the risk-adjusted investment performance of the stock portfolios of life insurance companies, attributable to their stock selection and market timing abilities. Using conventional measures of risk-adjusted portfolio performance, we find that life insurance companies exhibit performance similar to mutual funds. The evidence suggests that the life insurance companies, like their mutual fund counterparts, fail to exhibit differential stock selection or market timing abilities that are statistically significant. While the risk-adjusted investment performance of the two investment vehicles is similar, the variable annuity contracts of life insurance companies may offer an edge over mutual funds due to their ability to defer taxes.

Determinants of Household Check Writing: The Impacts of the Use of Electronic Banking Services and Alternative Pricing of Services
(pp. 35-44) DOWNLOAD FULL-TEXT FILE
Neil B. Murphy

ABSTRACT
In recent years, there has been a simultaneous deregulation of interest ceilings on household deposits and a dramatic deployment of automatic teller machines (ATMs) by the banking industry. At one time, there was a belief that the U.S. would evolve into a "checkless society" because of the development of electronic funds transfer systems such as the ATM. That has clearly not happened. The purpose of this paper is to estimate the impacts of both the use of ATMs and the change in pricing due to deregulation on household check writing. The source of the data is a survey of households conducted by the Board of Governors of the Federal Reserve System. The results of the tests indicate that the use of electronic banking services had no discernible impact on check writing.

Real Estate Income and Relocation
(pp. 45-59) DOWNLOAD FULL-TEXT FILE
Peter Chinloy

ABSTRACT
This paper looks at the decision relationship between two major assets of the individual, residential real estate and human capital, the ability to generate income from labor. Empirical results indicate that labor income is not sufficient for defining income within the utility function; real estate income must also be included. The decision to relocate must be made after considering both the return and risk in the area's residential real estate as well as the potential income from salaries.

Disability Income Insurance and the Individual
(pp. 61-78) DOWNLOAD FULL-TEXT FILE
Larry A. Cox

ABSTRACT
In this article, both institutional and research literature pertaining to disability income insurance issues is reviewed from the perspective of the individual. Primary issues include the nature of the risk, the quantity of purchase decision, the choice of product, and the selection of supplier. An ultimate objective is to provide the reader with the foundation necessary to initiate future research efforts focusing on disability-related loss exposures. Potential areas for future research are suggested.


THE JOURNAL OF INDIVIDUAL FINANCIAL MANAGEMENT
*Abstracts:* Financial Services Review Volume 1 Number 1, 1991 Individual versus Institutional Investing (pp. 1-8) DOWNLOAD FULL-TEXT FILE Harry M. Markowitz ABSTRACT This paper first describes the analytic approach that Markowitz used in developing his portfolio theory. Developing a game-of-life simulation is a parallel approach for modeling individual financial management. To develop a realistic simulator will require deciding what goals are essential to the family planning process, formulating optimizable subproblems, using technology to interpret and record decisions, and developing decision rules which prove robust in the model and can be implemented in practice. The Optimal Allocation of Pension Fund Assets: An Individual's Perspective (pp. 9-22) DOWNLOAD FULL-TEXT FILE Tom L. Potts, William Reichenstein ABSTRACT This study asks which assets an individual should hold indirectly in a pension in order to maximize total portfolio return, where the total portfolio consists of assets held directly outside of pensions plus the pro rata share of pension assets. The answer depends upon whether the individual actively or passively manages the nonpension portion of the total portfolio. Most individuals should place high-yield stocks in the pension fund. But active investors should place low-yield growth stocks in the pension, while very passive investors should place bonds in the pension fund. Reinstatement of capital gains exclusion would usually make corporate bonds the optimal pension asset. Life Insurance Companies as Investment Managers: New Implications for Consumers (pp. 23-34) DOWNLOAD FULL-TEXT FILE Robert T. Kleiman, Anandi P. Sahu ABSTRACT This paper examines the attractiveness of the equity portfolios of life insurance companies as an alternative investment to mutual funds. In particular, this study analyzes the risk-adjusted investment performance of the stock portfolios of life insurance companies, attributable to their stock selection and market timing abilities. Using conventional measures of risk-adjusted portfolio performance, we find that life insurance companies exhibit performance similar to mutual funds. The evidence suggests that the life insurance companies, like their mutual fund counterparts, fail to exhibit differential stock selection or market timing abilities that are statistically significant. While the risk-adjusted investment performance of the two investment vehicles is similar, the variable annuity contracts of life insurance companies may offer an edge over mutual funds due to their ability to defer taxes. Determinants of Household Check Writing: The Impacts of the Use of Electronic Banking Services and Alternative Pricing of Services (pp. 35-44) DOWNLOAD FULL-TEXT FILE Neil B. Murphy ABSTRACT In recent years, there has been a simultaneous deregulation of interest ceilings on household deposits and a dramatic deployment of automatic teller machines (ATMs) by the banking industry. At one time, there was a belief that the U.S. would evolve into a "checkless society" because of the development of electronic funds transfer systems such as the ATM. That has clearly not happened. The purpose of this paper is to estimate the impacts of both the use of ATMs and the change in pricing due to deregulation on household check writing. The source of the data is a survey of households conducted by the Board of Governors of the Federal Reserve System. The results of the tests indicate that the use of electronic banking services had no discernible impact on check writing. Real Estate Income and Relocation (pp. 45-59) DOWNLOAD FULL-TEXT FILE Peter Chinloy ABSTRACT This paper looks at the decision relationship between two major assets of the individual, residential real estate and human capital, the ability to generate income from labor. Empirical results indicate that labor income is not sufficient for defining income within the utility function; real estate income must also be included. The decision to relocate must be made after considering both the return and risk in the area's residential real estate as well as the potential income from salaries. Disability Income Insurance and the Individual (pp. 61-78) DOWNLOAD FULL-TEXT FILE Larry A. Cox ABSTRACT In this article, both institutional and research literature pertaining to disability income insurance issues is reviewed from the perspective of the individual. Primary issues include the nature of the risk, the quantity of purchase decision, the choice of product, and the selection of supplier. An ultimate objective is to provide the reader with the foundation necessary to initiate future research efforts focusing on disability-related loss exposures. Potential areas for future research are suggested.