Abstracts - Financial Services Review

Abstracts:

Financial Services Review
Volume 8 Number 2, 1999

Computerized Stock Screening Rules for Portfolio Selection (pp. 61-70) DOWNLOAD FULL-TEXT ARTICLE
Steven C. Gold, Paul Leibowitz

ABSTRACT
Recent studies have uncovered several systematic patterns that increase the probability that individual investors can select stock portfolios with excess returns. This study tests the feasibility of using a commercially available computerized stock screening program for investors to take advantage of these patterns. The screening program searches the three major exchanges and selects stocks on both fundamental and technical indicators: low price-to-sales ratio, small firm size, accelerating stock prices above their 50 day moving average, high trading volume, and high earnings growth. Of the 18 models tested between 1994 and 1998, those that allow for selection between exchanges yield portfolio returns that significantly exceed the average market indices.

Municipal Bonds: A Contingent Claims Perspective (pp. 71-85) DOWNLOAD FULL-TEXT ARTICLE
Robert Brooks

ABSTRACT
The purpose of this paper is to provide an overview of the municipal bond market with an emphasis on the numerous embedded contingent claims. Embedded contingent claims include the standard call features, sinking funds, the advance refunding option, the synthetic advance refunding option, the credit risk option (default risk), marketability, and the numerous tax-related events. Municipal bond investors must carefully assess the relative value of these contingent claims before investing in municipal bonds. Also, due to unique risk premiums within the municipal bond market, it is important to carefully structure the municipal bond holdings, paying particular attention to duration, within the context of an overall financial plan. There appears to be a benefit to lengthening the duration of the municipal bond portion of the portfolio.

Investor Partitioning of the Components of Value in Corporate Earnings Announcements
(pp. 87-99) DOWNLOAD FULL-TEXT ARTICLE
John A. MacDonald, David M. Smith

ABSTRACT
This study provides new insight into the market’s allocation of dividend-related and capital gains-based returns on common stock around earnings announcement surprises. To the extent that investors’ cash flow forecasts are revised as earnings surprises occur, Americus Trust prime and score returns reflect changes in respective future dividends and capital gains. About 70 percent of the value gain from positive surprises accrues in the capital gains (score) value adjustment, with expected dividends (primes) reflecting the remaining 30 percent. The relative proportion is greater in magnitude at the announcement of fiscal fourth quarter results when dividend changes are more likely to follow the quarter earnings announcement than announcements in other quarters.

ABSTRACT
This paper investigates the feasibility of an individual hedging the interest rate risk involved in planning to take out a mortgage at a future point in time. Simulation using market data indicates that a simple futures hedge reduces the variation in mortgage capacity by about one half. Expected mortgage capacity is very close to 100 percent of the original capacity at a very low cost. Hedging the individual mortgage with a put futures option is less effective in reducing downside risk and has a higher expected cost.

Does Retirement Planning Affect the Level of Retirement Satisfaction? (pp. 117-127)
DOWNLOAD FULL-TEXT ARTICLE
Harold W. Elder, Patricia M. Rudolph

ABSTRACT
This paper analyzes the relationship between retirement planning and retirement satisfaction. Do individuals think about and plan for retirement? If they do, do they utilize financial planning services? If they plan, are they more satisfied with retirement than those who did not? Data for 1,781 retired individuals from the first wave of the Health and Retirement Study (HRS) are analyzed using an ordered probit model. The results indicate that thinking about retirement and attending planning meetings have a significant positive impact on satisfaction even when income, wealth, marital status and health are included as explanatory variables.


THE JOURNAL OF INDIVIDUAL FINANCIAL MANAGEMENT
*Abstracts:* Financial Services Review Volume 8 Number 2, 1999 Computerized Stock Screening Rules for Portfolio Selection (pp. 61-70) DOWNLOAD FULL-TEXT ARTICLE Steven C. Gold, Paul Leibowitz ABSTRACT Recent studies have uncovered several systematic patterns that increase the probability that individual investors can select stock portfolios with excess returns. This study tests the feasibility of using a commercially available computerized stock screening program for investors to take advantage of these patterns. The screening program searches the three major exchanges and selects stocks on both fundamental and technical indicators: low price-to-sales ratio, small firm size, accelerating stock prices above their 50 day moving average, high trading volume, and high earnings growth. Of the 18 models tested between 1994 and 1998, those that allow for selection between exchanges yield portfolio returns that significantly exceed the average market indices. Municipal Bonds: A Contingent Claims Perspective (pp. 71-85) DOWNLOAD FULL-TEXT ARTICLE Robert Brooks ABSTRACT The purpose of this paper is to provide an overview of the municipal bond market with an emphasis on the numerous embedded contingent claims. Embedded contingent claims include the standard call features, sinking funds, the advance refunding option, the synthetic advance refunding option, the credit risk option (default risk), marketability, and the numerous tax-related events. Municipal bond investors must carefully assess the relative value of these contingent claims before investing in municipal bonds. Also, due to unique risk premiums within the municipal bond market, it is important to carefully structure the municipal bond holdings, paying particular attention to duration, within the context of an overall financial plan. There appears to be a benefit to lengthening the duration of the municipal bond portion of the portfolio. Investor Partitioning of the Components of Value in Corporate Earnings Announcements (pp. 87-99) DOWNLOAD FULL-TEXT ARTICLE John A. MacDonald, David M. Smith ABSTRACT This study provides new insight into the market’s allocation of dividend-related and capital gains-based returns on common stock around earnings announcement surprises. To the extent that investors’ cash flow forecasts are revised as earnings surprises occur, Americus Trust prime and score returns reflect changes in respective future dividends and capital gains. About 70 percent of the value gain from positive surprises accrues in the capital gains (score) value adjustment, with expected dividends (primes) reflecting the remaining 30 percent. The relative proportion is greater in magnitude at the announcement of fiscal fourth quarter results when dividend changes are more likely to follow the quarter earnings announcement than announcements in other quarters. Hedging Individual Mortgage Risk (pp. 101-115) DOWNLOAD FULL-TEXT ARTICLE Terry L. Zivney, Carl F. Luft ABSTRACT This paper investigates the feasibility of an individual hedging the interest rate risk involved in planning to take out a mortgage at a future point in time. Simulation using market data indicates that a simple futures hedge reduces the variation in mortgage capacity by about one half. Expected mortgage capacity is very close to 100 percent of the original capacity at a very low cost. Hedging the individual mortgage with a put futures option is less effective in reducing downside risk and has a higher expected cost. Does Retirement Planning Affect the Level of Retirement Satisfaction? (pp. 117-127) DOWNLOAD FULL-TEXT ARTICLE Harold W. Elder, Patricia M. Rudolph ABSTRACT This paper analyzes the relationship between retirement planning and retirement satisfaction. Do individuals think about and plan for retirement? If they do, do they utilize financial planning services? If they plan, are they more satisfied with retirement than those who did not? Data for 1,781 retired individuals from the first wave of the Health and Retirement Study (HRS) are analyzed using an ordered probit model. The results indicate that thinking about retirement and attending planning meetings have a significant positive impact on satisfaction even when income, wealth, marital status and health are included as explanatory variables.