Abstracts - Financial Services Review

Abstracts:

Financial Services Review
Volume 7 Number 3, 1998

The Rise and Fall of the 'Dogs of the Dow' (pp. 145-159) DOWNLOAD FULL-TEXT ARTICLE
Dale L. Domian, Charles E. Mossman

A 1998 Academy of Financial Services Award Paper with funding provided by The Association of Individual Investors

ABSTRACT
The Dow Dividend Strategy recommends the highest-yielding stocks from the 30 Dow Industrials. These stocks have come to be known as the 'Dogs of the Dow' since they often include some of the previous year's worst performers. While the strategy's successes - and more recently, its failures - have been well documented in the popular press, there have not been any convincing explanations of why the strategy worked. This paper demonstrates that the behavior of these stocks is consistent with the market overreaction hypothesis. In years before the stock market crash of 1987, the dogs were indeed 'losers' which went on to become 'winners.' But in the post-crash period, the high-yield stocks actually outperformed the market during the previous year. The Dow Dividend Strategy is no longer selecting the true dogs.

The Sociology of Personal Finance (pp. 161-173) DOWNLOAD FULL-TEXT ARTICLE
Chris Robinson, Elton G. McGoun

A 1998 Academy of Financial Services Award Paper with funding provided by the American College

ABSTRACT
Finance in general and personal finance in particular assume that there is a pure market money. The financial resources of a business or a household are taken to be a single mass made up of indistinguishable dollars, marks, yen, pounds, francs, or whatever. Consequently, we are free to devise "rational rules" for managing this mass, for prescribing how a business or household should choose the appropriate forms of money and the appropriate accounts for money without having to look more closely at the money itself. In this paper we argue that rational behaviour is a more complex and richer process than simply valuing market money, since there are qualitative characteristics attached to any money, however defined.

Mean and Pessimistic Projections of Retirement Adequacy (pp. 175-193) DOWNLOAD FULL-TEXT ARTICLE
Yoonkyung Yuh, Sherman Hanna, Catherine Phillips Montalto

A 1998 Academy of Financial Services Award Paper with funding provided by Texas Instruments

ABSTRACT
Retirement adequacy is estimated using a 1995 United States sample of households. Based on mean lognormal portfolio projections and current contribution rates, 52% of households are adequately prepared for retirement. Based on pessimistic projections, only 42% of households are adequately prepared. A regression of the ratio of projected wealth to needs at retirement shows that adequacy increases with stock share (mean projection) and the impact increases with time until retirement. With pessimistic projections, there is no significant relationship between stock share and the adequacy ratio. Planned retirement age and household spending behavior are each significantly related to the adequacy ratio.

Calculating a Family's Asset Mix (pp. 195-206) DOWNLOAD FULL-TEXT ARTICLE
William Reichenstein

ABSTRACT
I reach two conclusions about how a family should calculate its asset mix. First, if the assets will be used to finance retirement needs, the asset mix should be based on after-tax values, because goods and services are purchased with after-tax dollars. This novel conclusion rejects current practice. The second conclusion concerns which assets and liabilities should be included in the portfolio. If the purpose of the calculation is to consider a family's retirement needs, the asset mix should include the promises of defined-benefit pension plans and Social Security, and the family’s mortgage should be treated as a short bond position. Also, if the family is willing to downsize or borrow against the residence, part of its value should be included in the portfolio.

Credit Union Industry Structure: An Examination of Potential Risks
(pp. 207-215) DOWNLOAD FULL-TEXT ARTICLE
Robert J. Boldin, Keith Leggett

ABSTRACT
The Credit Union Industry has undergone significant changes over the past decade. With more than 11,500 credit unions now serving 74 million members, it continues to attract shareholders/depositors because of its generally lower cost services and higher returns on savings. The Credit Union Membership Access Act of August 1998 should help membership continue to grow. At the same time, however, shareholders/depositors should be aware of the unique structure of the credit union industry. This paper examines the inherent risk as a result of the interrelationships among its components.


THE JOURNAL OF INDIVIDUAL FINANCIAL MANAGEMENT
*Abstracts:* Financial Services Review Volume 7 Number 3, 1998 The Rise and Fall of the 'Dogs of the Dow' (pp. 145-159) DOWNLOAD FULL-TEXT ARTICLE Dale L. Domian, Charles E. Mossman A 1998 Academy of Financial Services Award Paper with funding provided by The Association of Individual Investors ABSTRACT The Dow Dividend Strategy recommends the highest-yielding stocks from the 30 Dow Industrials. These stocks have come to be known as the 'Dogs of the Dow' since they often include some of the previous year's worst performers. While the strategy's successes - and more recently, its failures - have been well documented in the popular press, there have not been any convincing explanations of why the strategy worked. This paper demonstrates that the behavior of these stocks is consistent with the market overreaction hypothesis. In years before the stock market crash of 1987, the dogs were indeed 'losers' which went on to become 'winners.' But in the post-crash period, the high-yield stocks actually outperformed the market during the previous year. The Dow Dividend Strategy is no longer selecting the true dogs. The Sociology of Personal Finance (pp. 161-173) DOWNLOAD FULL-TEXT ARTICLE Chris Robinson, Elton G. McGoun A 1998 Academy of Financial Services Award Paper with funding provided by the American College ABSTRACT Finance in general and personal finance in particular assume that there is a pure market money. The financial resources of a business or a household are taken to be a single mass made up of indistinguishable dollars, marks, yen, pounds, francs, or whatever. Consequently, we are free to devise "rational rules" for managing this mass, for prescribing how a business or household should choose the appropriate forms of money and the appropriate accounts for money without having to look more closely at the money itself. In this paper we argue that rational behaviour is a more complex and richer process than simply valuing market money, since there are qualitative characteristics attached to any money, however defined. Mean and Pessimistic Projections of Retirement Adequacy (pp. 175-193) DOWNLOAD FULL-TEXT ARTICLE Yoonkyung Yuh, Sherman Hanna, Catherine Phillips Montalto A 1998 Academy of Financial Services Award Paper with funding provided by Texas Instruments ABSTRACT Retirement adequacy is estimated using a 1995 United States sample of households. Based on mean lognormal portfolio projections and current contribution rates, 52% of households are adequately prepared for retirement. Based on pessimistic projections, only 42% of households are adequately prepared. A regression of the ratio of projected wealth to needs at retirement shows that adequacy increases with stock share (mean projection) and the impact increases with time until retirement. With pessimistic projections, there is no significant relationship between stock share and the adequacy ratio. Planned retirement age and household spending behavior are each significantly related to the adequacy ratio. Calculating a Family's Asset Mix (pp. 195-206) DOWNLOAD FULL-TEXT ARTICLE William Reichenstein ABSTRACT I reach two conclusions about how a family should calculate its asset mix. First, if the assets will be used to finance retirement needs, the asset mix should be based on after-tax values, because goods and services are purchased with after-tax dollars. This novel conclusion rejects current practice. The second conclusion concerns which assets and liabilities should be included in the portfolio. If the purpose of the calculation is to consider a family's retirement needs, the asset mix should include the promises of defined-benefit pension plans and Social Security, and the family’s mortgage should be treated as a short bond position. Also, if the family is willing to downsize or borrow against the residence, part of its value should be included in the portfolio. Credit Union Industry Structure: An Examination of Potential Risks (pp. 207-215) DOWNLOAD FULL-TEXT ARTICLE Robert J. Boldin, Keith Leggett ABSTRACT The Credit Union Industry has undergone significant changes over the past decade. With more than 11,500 credit unions now serving 74 million members, it continues to attract shareholders/depositors because of its generally lower cost services and higher returns on savings. The Credit Union Membership Access Act of August 1998 should help membership continue to grow. At the same time, however, shareholders/depositors should be aware of the unique structure of the credit union industry. This paper examines the inherent risk as a result of the interrelationships among its components.