Who Are the Value and Growth Investors?

This paper investigates value and growth investing in a large administrative panel of Swedish residents. We show that, over the life cycle, households progressively shift from growth to value as they become older and their balance sheets improve. Furthermore, investors with high human capital and high exposure to macroeconomic risk tilt their portfolios away from value. While several behavioral biases seem evident in the data, the patterns we uncover are overall remarkably consistent with the portfolio implications of risk‐based theories of the value premium.     

IS THE DEMISE OF M2 GREATLY EXAGGERATED?

The early 1990s in the United States were years of sluggish economic growth alongside a sharply lowered federal funds rate, leading analysts to conclude that monetary policy must have been rendered ineffective by external influences. One previously popular monetary policy indicator not used to analyze the period was real M2, as it was widely considered to have been distorted since the early 1980s. This paper argues that it was a serious mistake to ignore M2 in the early 1990s since it never forecast (relatively or absolutely) better and helps explains this otherwise puzzling period very well. (JEL E32, E51, E52)     

False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas

This paper develops a simple technique that controls for "false discoveries," or mutual funds that exhibit significant alphas by luck alone. Our approach precisely separates funds into (1) unskilled, (2) zero-alpha, and (3) skilled funds, even with dependencies in cross-fund estimated alphas. We find that 75% of funds exhibit zero alpha (net of expenses), consistent with the Berk and Green equilibrium. Further, we find a significant proportion of skilled (positive alpha) funds prior to 1996, but almost none by 2006. We also show that controlling for false discoveries substantially improves the ability to find the few funds with persistent performance.     

INSTITUTIONAL CHANGES NOW AND BENEFITS TOMORROW: HOW SOON IS TOMORROW?

This paper investigates the timing of the impact of changes in checks and balances on macroeconomic efficiency in a panel of countries. Using Battese and Coelli's one-stage approach, we find that increasing checks and balances results in greater efficiency. Furthermore, the impact of institutional changes on efficiency is delayed, with a full effect showing after five to six years. This finding remains robust after distinguishing developed and developing countries, including country-fixed effects and using alternative functional forms of the production frontier and alternative measures of checks and balances. The relation is also robust to controlling for endogeneity.     

COMMENT: TESTING FOR INVERSEHOMOTHETICITY: A NONPARAMETRIC APPROACH*

This paper starts from Fukuyama and Weber's (2004 ) work on testing for inverse homotheticity to show that the equality of the output gain function and the Zieschang output gain function is not equivalent to inverse homotheticity. Hence, testing for the equality of these gain functions cannot prove that a technology is inverse homothetic. Moreover, it is established that the gain functions are equal if and only if the direct and indirect isoquant and the corresponding efficient set are equal, which does not depend on inverse homotheticity.     

Twin Picks: Disentangling the Determinants of Risk‐Taking in Household Portfolios

This paper investigates risk‐taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also affects risk‐taking positively, while internal habit and expenditure commitments tend to reduce it. Our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative‐agent models.