How do consumers evaluate risk in financial products?

Decision-making processes consumers use in investing lump sums are reviewed, focusing on how investment risk is perceived and assessed. Primary research was undertaken with investment customers to explore the role played in evaluation of investment risk by risk perceptions and risk propensity. Both the literature review and the research findings indicate the central role risk perceptions play in financial decisions. Sitkin and Weingart's risk model is used as a research framework. Risk propensity and risk perception were found to be negatively correlated, however, deposit accounts were selected for investment irrespective of how risky a respondent considered them to be. Risk perceptions and expected return were positively correlated for all asset types apart from property. Further investigation revealed that experts exhibited positive correlation in risk return judgments but novices showed no correlation. There was no correlation between risk and return for either novices or experts for property. Return expectations were positively correlated with investment allocation. Provision of past performance information appears to create an expectation for future returns around the same level as past returns. Research findings suggest that outcome history is a predictor variable, with a Positive outcome history leading to higher risk Propensity. The level of risk customers are assuming shows a significantly increasing trend.     

An Exploration of the Conditional Timing Performance of UK Unit Trusts

Abstract:  We examine the conditional market timing performance of UK unit trusts between January 1988 and December 2002. We find no evidence of superior conditional market timing performance by UK unit trusts either across different portfolios of trusts or by individual trusts. We also find that benchmark investing is significant for UK unit trusts and trusts have high numerical risk aversion to deviations from the benchmark. Our findings suggest that UK trusts act like benchmark investors.     

OPTIMAL CULLING POLICY FOR BREEDING EWES

This article demonstrates a method to determine the optimal culling, policy for a sheep breeding flock. A model of the flock is constructed and profitability calculated for different age distributions of ewes. The method is illustrated with data obtained from an actual farm by a farm management consultant.     

Reviews

YUGOSLAVIA IN TURMOIL.

Simmie, J. and Dekleva, J. 1991: Yugoslavia in Turmoil: after self-management?, London: Pinter Publishers, £35.00 cloth.

THE DEFENCE OF WELFARE.

Whitfield, D. 1992: The Welfare State. London: Pluto, £45.00 cloth, £19.95 paper.

GLOBAL FINANCE.

Budd, L. and Whimster, S. (eds) 1992: Global Finance and Urban Living, London: Routledge, £40.00 hardback, £13.99 paperback.

LABOUR MARKET RESEARCH.

Moore, B. and Townroe, P. 1990: Urban Labour markets - Reviews of Urban Research, Department of the Environment: HMSO, £11.25.     

Towards Enforceable Bans on Illicit Businesses: From Moral Relativism to Human Rights

Many scholars and activists favor banning illicit businesses, especially given that such businesses constitute a large part of the global economy. But these businesses are commonly operated as if they are subject only to the ethical norms their management chooses to recognize, and as a result they sometimes harm innocent people. This can happen in part because there are no effective legal constraints on illicit businesses, and in part because it seems theoretically impossible to dispose definitively of arguments that support moral relativism. Progress is being made, however, towards a “second best” arrangement consisting of widespread institutional agreements regarding ethical norms. This development might eventually enable us to transcend moral relativism in some respects. Indeed, although some business ethicists who examine illicit business practices accept moral relativism, others attempt to surmount it. The latters’ endeavor, I show, is cross-cultural in nature in that it involves businesses that are deemed illicit in at least one but not every culture. I then recall some traditional solutions and their limits: ideological teachings are culture-specific, hence both temporally and spatially limited; legal constraints, though potentially helpful, are too diverse hence often narrow in reach. Especially problematic are defense industry businesses, which are inherently transcultural and, though uniquely harmful, are not effectively banned in any culture. Harm to quality of life (QoL) can, however, be measured. So I recommend institutional support for international human rights tied to QoL data as a workable way to counter moral relativism regarding illicit businesses.     

Canadian city housing prices and urban market segmentation

Abstract .  This paper provides a detailed empirical analysis of Canadian city housing prices. We examine the long-run relationship between city house prices in Canada from 1985 to 2005 as well as idiosyncratic relations between city prices and city-specific variables. The results suggest that city house prices are only weakly correlated in the long run and that there is a disconnect between house prices and interest rates. City-specific variables such as union wage levels and the issuance of building permits tend to be positively related to existing city house prices. Surprisingly, there is mixed evidence with respect to standard measures of economic activity such as per capita GDP and interest rates.     

TESTING MODELS OF DIFFERENTIATED PRODUCTS MARKETS: CONSOLIDATION IN THE CABLE TV INDUSTRY

Research on differentiated products markets often uses structural demand/supply models to identify firms' marginal costs as product‐level cost data are unavailable. Using unique demand and cost data from cable TV, I evaluate a differentiated products model's ability to identify marginal costs. I find firms systematically price below profit‐maximizing levels, leading to biases in the model's marginal cost estimates. I study the implications for merger simulations and find that these biases compromise estimates of merger‐related cost efficiencies, yet do not prevent these models from generating useful predictions of the price and nonprice effects of mergers.