Abstracts - Financial Services Review

Abstracts:

Financial Services Review
Volume 9 Number 3, 2000

DESIGN CONSIDERATIONS FOR LARGE PUBLIC SECTOR DEFINED CONTRIBUTION PLANS (pp. 197-218) DOWNLOAD FULL-TEXT ARTICLE
Kevin W. SigRist Stewart L. Brown

ABSTRACT
The paper identifies differences between private (401 (k)) plans, which have evolved under ERISA and existing public plans, which have not. Examination of model legislation reveals that public plans should largely conform to ERISA going forward and reflect best practices in the private sector. Empirical analysis of equity mutual funds with $1.8 trillion in assets and institutional equity accounts with $98 billion in assets demonstrates efficiencies in separately procured institutional investment, administrative and educational services relative to retail investment products. The analysis points to tension between the duties of trustees and the demands of participants requesting large numbers of retail investment options.

EXPOITABLE PATTERNS IN RETIREMENT ANNUITY RETURNS: EVIDENCE FROM TIAA/CREF
(pp. 219-230) DOWNLOAD FULL-TEXT ARTICLE
Edward M. Miller, Larry J. Prather

ABSTRACT
Evidence suggests that predictabilities in asset class returns exist but transactions costs prevent exploiting them using individual securities. Extant research also shows that these relationships may by exploitable through the trading of mutual funds but fails to examine whether this relationship exists within an individual fund family. This paper finds that TIAA/CREF retirement annuities exhibit predictable elements that could be exploited by informed traders. The proposed trading strategy dominates a buy-and-hold strategy by producing higher raw and risk-adjusted returns. Additionally, the risk is greatly reduced.

RETIREMENT PLANNING GUIDELINES: A DELPHI STUDY OF FINANCIAL PLANNERS AND EDUCATORS (pp. 231-245) DOWNLOAD FULL-TEXT ARTICLE
Sue Alexander Greninger, Karrol A. Kitt, Vickie L. Hampton, Susan Jacquet

ABSTRACT
Retirement planning guidelines were determined using a Delphi research design among 188 financial planners and educators. Consensus was found for using a 4% inflation rate, an 8.5% rate of return on investments, and a replacement ratio of 70-89% of current income when making retirement projections. Nine-tenths of the experts agreed that families should have achieved 50-60% of their retirement savings goal by age 50 and 85-90% by age 60. Regarding asset allocation, over 60% felt it was prudent to start moving toward more conservative investments about 3-5 years before retirement. Recommendations were developed on the proportion of growth-oriented equities to hold at various points prior to and after retiring. While the level of consensus was high, occupational and gender differences were noted.

PERFORMANCE PERSISTENCE AND MANAGEMENT SKILL IN NON-CONVENTIONAL BOND MUTUAL FUNDS (pp. 247-258) DOWNLOAD FULL-TEXT ARTICLE
James Philpot, Douglas Hearth, James Rimbey

ABSTRACT
Recent empirical research has identified a tendency for equity mutual funds to provide consistent performance relative to other funds over time. Studies of bond funds have centered around investment grade, straight bonds and have concluded that fund managers outperform indexes on a gross (although not net) basis, but that performance is hampered by high expense levels. We examine non-conventional bond funds (high-yield bonds, global issues and convertible bonds) and find that short-term performance persistence is present, but limited to the high-yield bond sub-sample. Fund managers are unable to distinguish themselves in the long term, despite the diverse nature of the funds they oversee.

THE EFFECT OF COUNTRY-SPECIFIC INDEX TRADING ON CLOSED-END COUNTRY FUNDS: AN EMPIRICAL ANALYSIS (pp. 259-275) DOWNLOAD FULL-TEXT ARTICLE
Matthew O’Connor, Ph.D., Edward A. Downe, Ph.D.

ABSTRACT
The American Stock Exchange initiated trading in 17 World Equity Benchmark Shares (acronym“WEBS”TM) in April 1996. WEBS are index funds designed to track the Morgan Stanley Capital International (MSCI) indexes. We examine the effect of this event on closed-end country funds (CECFs) and find that percentage discounts increase. CECFs with a corresponding WEBS index experience the largest increase and also show a decline in trading volume. We attribute these results to (1) the effects of increased competition and (2) a reduction in the market segmentation premium. Since additional WEBS have begun trading, and other approvals may follow, similar effects could be experienced in the future.

CONSUMER INFORMATION SEARCH FOR HOME MORTGAGES: WHO, WHAT, HOW MUCH, AND WHAT ELSE? (pp. 277-293) DOWNLOAD FULL-TEXT ARTICLE
Jinkook Lee, Jeanne M. Hogarth

FROM THE EDITOR (v-vi) DOWNLOAD FULL-TEXT ARTICLE


THE JOURNAL OF INDIVIDUAL FINANCIAL MANAGEMENT
*Abstracts:* Financial Services Review Volume 9 Number 3, 2000 DESIGN CONSIDERATIONS FOR LARGE PUBLIC SECTOR DEFINED CONTRIBUTION PLANS (pp. 197-218) DOWNLOAD FULL-TEXT ARTICLE Kevin W. SigRist Stewart L. Brown ABSTRACT The paper identifies differences between private (401 (k)) plans, which have evolved under ERISA and existing public plans, which have not. Examination of model legislation reveals that public plans should largely conform to ERISA going forward and reflect best practices in the private sector. Empirical analysis of equity mutual funds with $1.8 trillion in assets and institutional equity accounts with $98 billion in assets demonstrates efficiencies in separately procured institutional investment, administrative and educational services relative to retail investment products. The analysis points to tension between the duties of trustees and the demands of participants requesting large numbers of retail investment options. EXPOITABLE PATTERNS IN RETIREMENT ANNUITY RETURNS: EVIDENCE FROM TIAA/CREF (pp. 219-230) DOWNLOAD FULL-TEXT ARTICLE Edward M. Miller, Larry J. Prather ABSTRACT Evidence suggests that predictabilities in asset class returns exist but transactions costs prevent exploiting them using individual securities. Extant research also shows that these relationships may by exploitable through the trading of mutual funds but fails to examine whether this relationship exists within an individual fund family. This paper finds that TIAA/CREF retirement annuities exhibit predictable elements that could be exploited by informed traders. The proposed trading strategy dominates a buy-and-hold strategy by producing higher raw and risk-adjusted returns. Additionally, the risk is greatly reduced. RETIREMENT PLANNING GUIDELINES: A DELPHI STUDY OF FINANCIAL PLANNERS AND EDUCATORS (pp. 231-245) DOWNLOAD FULL-TEXT ARTICLE Sue Alexander Greninger, Karrol A. Kitt, Vickie L. Hampton, Susan Jacquet ABSTRACT Retirement planning guidelines were determined using a Delphi research design among 188 financial planners and educators. Consensus was found for using a 4% inflation rate, an 8.5% rate of return on investments, and a replacement ratio of 70-89% of current income when making retirement projections. Nine-tenths of the experts agreed that families should have achieved 50-60% of their retirement savings goal by age 50 and 85-90% by age 60. Regarding asset allocation, over 60% felt it was prudent to start moving toward more conservative investments about 3-5 years before retirement. Recommendations were developed on the proportion of growth-oriented equities to hold at various points prior to and after retiring. While the level of consensus was high, occupational and gender differences were noted. PERFORMANCE PERSISTENCE AND MANAGEMENT SKILL IN NON-CONVENTIONAL BOND MUTUAL FUNDS (pp. 247-258) DOWNLOAD FULL-TEXT ARTICLE James Philpot, Douglas Hearth, James Rimbey ABSTRACT Recent empirical research has identified a tendency for equity mutual funds to provide consistent performance relative to other funds over time. Studies of bond funds have centered around investment grade, straight bonds and have concluded that fund managers outperform indexes on a gross (although not net) basis, but that performance is hampered by high expense levels. We examine non-conventional bond funds (high-yield bonds, global issues and convertible bonds) and find that short-term performance persistence is present, but limited to the high-yield bond sub-sample. Fund managers are unable to distinguish themselves in the long term, despite the diverse nature of the funds they oversee. THE EFFECT OF COUNTRY-SPECIFIC INDEX TRADING ON CLOSED-END COUNTRY FUNDS: AN EMPIRICAL ANALYSIS (pp. 259-275) DOWNLOAD FULL-TEXT ARTICLE Matthew O’Connor, Ph.D., Edward A. Downe, Ph.D. ABSTRACT The American Stock Exchange initiated trading in 17 World Equity Benchmark Shares (acronym“WEBS”TM) in April 1996. WEBS are index funds designed to track the Morgan Stanley Capital International (MSCI) indexes. We examine the effect of this event on closed-end country funds (CECFs) and find that percentage discounts increase. CECFs with a corresponding WEBS index experience the largest increase and also show a decline in trading volume. We attribute these results to (1) the effects of increased competition and (2) a reduction in the market segmentation premium. Since additional WEBS have begun trading, and other approvals may follow, similar effects could be experienced in the future. CONSUMER INFORMATION SEARCH FOR HOME MORTGAGES: WHO, WHAT, HOW MUCH, AND WHAT ELSE? (pp. 277-293) DOWNLOAD FULL-TEXT ARTICLE Jinkook Lee, Jeanne M. Hogarth FROM THE EDITOR (v-vi) DOWNLOAD FULL-TEXT ARTICLE