Abstracts - Financial Services Review

Abstracts:

Financial Services Review
Volume 9 Number 2, 2000

Market Timing Using Strategists' and Analysts' Forecasts of S&P 500 Earnings Per Share (pp. 125-144) DOWNLOAD FULL-TEXT ARTICLE
Richard Chung, Lawrence Kryzanowski

ABSTRACT
This paper examines the bias in and usefulness of top-down and bottom-up consensus forecasts of earnings per share for the S&P 500 Index provided by market strategists and analysts to I/B/E/S. These forecasts exhibit a significant optimism bias that decreases over the 12 months up to release of actual earnings per share. The bias is significantly more pronounced for the bottom-up forecasts of analysts. Unlike the findings for country timing, we demonstrate that a stock market timer using switching rules based on the consensus forecasts of S&P 500 earnings or the directional switch in the consensus or in the number of switchers cannot generate a free lunch. © 2000 Elsevier Science Inc. All rights reserved.

Stock Selection Based On Morningstar's Ten-Year, Five-Star General Equity Mutual Funds (pp. 145-157) DOWNLOAD FULL_TEXT ARTICLE
Anthony L. Loviscek, W. John Jordan

ABSTRACT
Recent research suggests that the individual investor can build stock portfolios that outperform broad market indices. Based on this research and on evidence supporting the persistence of mutual fund performance, we test whether or not the individual investor can build market-superior portfolios from stocks selected from the top holdings of Morningstar=s ten-year, five-star general equity mutual funds. We use modern portfolio theory to construct the portfolios. Although the portfolios tend to outperform the S&P 500 for the 1990's, we conclude that the evidence is not strong enough to recommend this stock selection strategy to the individual investor. © 2000 Elsevier Science Inc. All rights reserved.

Risk Tolerance and Asset Allocation for Investors Nearing Retirement (pp. 159-170) DOWNLOAD FULL_TEXT ARTICLE
Govind Hariharan, Kenneth S. Chapman, Dale L. Domian

ABSTRACT
This paper uses a large individual-level data set to isolate the effects of risk tolerance on portfolio composition. We test and confirm two predictions of the Capital Asset Pricing Model: (1) increased risk tolerance reduces an individual’s propensity to purchase risk-free assets; and (2) higher risk tolerance does not affect the composition of an individual’s portfolio of risky assets. More specifically, we find that risk tolerant investors nearing retirement do not reduce their bond allocations in order to buy more stock. © 2000 Elsevier Science Inc. All rights reserved.

The Information Content of Closed-End Country Fund Discounts (pp.171-181) DOWNLOAD FULL-TEXT ARTICLE
John E. Richard, James B. Wiggins

ABSTRACT
This paper examines whether premiums and discounts on closed-end country mutual funds (CECFs) contain useful information about future returns. We find that higher CECF premiums are associated both with higher future returns on the relevant foreign market index and with higher future NAV returns after controlling for the foreign market return. CECFs trading at large discounts are not necessarily bargains, because their future NAV performance can be expected to be relatively poor. © 2000 Elsevier Science Inc. All rights reserved.

Liquidating A Remainder Interest: Simplifying Personal Finance (pp. 183-195) DOWNLOAD FULL-TEXT FILE
Tony Cherin, John C. Bost

ABSTRACT
There are many ways in which decedents leave property in trust for their heirs. One technique is to grant a life estate to surviving children. The purpose of this paper is to describe verbally, and through example, an approach to liquidating a life estate. This simplification in personal finance involves a “buyout” of the interests of the remaindermen. The result is dissolution of the trust, leaving the income beneficiaries to manage, as owner in fee, the remaining assets as they wish, without the expense and complexity associated with maintaining a trust. © 2000 Elsevier Science Inc. All rights reserved.


THE JOURNAL OF INDIVIDUAL FINANCIAL MANAGEMENT
*Abstracts:* Financial Services Review Volume 9 Number 2, 2000 Market Timing Using Strategists' and Analysts' Forecasts of S&P 500 Earnings Per Share (pp. 125-144) DOWNLOAD FULL-TEXT ARTICLE Richard Chung, Lawrence Kryzanowski ABSTRACT This paper examines the bias in and usefulness of top-down and bottom-up consensus forecasts of earnings per share for the S&P 500 Index provided by market strategists and analysts to I/B/E/S. These forecasts exhibit a significant optimism bias that decreases over the 12 months up to release of actual earnings per share. The bias is significantly more pronounced for the bottom-up forecasts of analysts. Unlike the findings for country timing, we demonstrate that a stock market timer using switching rules based on the consensus forecasts of S&P 500 earnings or the directional switch in the consensus or in the number of switchers cannot generate a free lunch. © 2000 Elsevier Science Inc. All rights reserved. Stock Selection Based On Morningstar's Ten-Year, Five-Star General Equity Mutual Funds (pp. 145-157) DOWNLOAD FULL_TEXT ARTICLE Anthony L. Loviscek, W. John Jordan ABSTRACT Recent research suggests that the individual investor can build stock portfolios that outperform broad market indices. Based on this research and on evidence supporting the persistence of mutual fund performance, we test whether or not the individual investor can build market-superior portfolios from stocks selected from the top holdings of Morningstar=s ten-year, five-star general equity mutual funds. We use modern portfolio theory to construct the portfolios. Although the portfolios tend to outperform the S&P 500 for the 1990's, we conclude that the evidence is not strong enough to recommend this stock selection strategy to the individual investor. © 2000 Elsevier Science Inc. All rights reserved. Risk Tolerance and Asset Allocation for Investors Nearing Retirement (pp. 159-170) DOWNLOAD FULL_TEXT ARTICLE Govind Hariharan, Kenneth S. Chapman, Dale L. Domian ABSTRACT This paper uses a large individual-level data set to isolate the effects of risk tolerance on portfolio composition. We test and confirm two predictions of the Capital Asset Pricing Model: (1) increased risk tolerance reduces an individual’s propensity to purchase risk-free assets; and (2) higher risk tolerance does not affect the composition of an individual’s portfolio of risky assets. More specifically, we find that risk tolerant investors nearing retirement do not reduce their bond allocations in order to buy more stock. © 2000 Elsevier Science Inc. All rights reserved. The Information Content of Closed-End Country Fund Discounts (pp.171-181) DOWNLOAD FULL-TEXT ARTICLE John E. Richard, James B. Wiggins ABSTRACT This paper examines whether premiums and discounts on closed-end country mutual funds (CECFs) contain useful information about future returns. We find that higher CECF premiums are associated both with higher future returns on the relevant foreign market index and with higher future NAV returns after controlling for the foreign market return. CECFs trading at large discounts are not necessarily bargains, because their future NAV performance can be expected to be relatively poor. © 2000 Elsevier Science Inc. All rights reserved. Liquidating A Remainder Interest: Simplifying Personal Finance (pp. 183-195) DOWNLOAD FULL-TEXT FILE Tony Cherin, John C. Bost ABSTRACT There are many ways in which decedents leave property in trust for their heirs. One technique is to grant a life estate to surviving children. The purpose of this paper is to describe verbally, and through example, an approach to liquidating a life estate. This simplification in personal finance involves a “buyout” of the interests of the remaindermen. The result is dissolution of the trust, leaving the income beneficiaries to manage, as owner in fee, the remaining assets as they wish, without the expense and complexity associated with maintaining a trust. © 2000 Elsevier Science Inc. All rights reserved.