The adequacy of investment choices offered by 401(k) plans

The choices made by 401(k) participants are the product of two different decisions: what is offered and what is chosen. While there have been a number of studies of the decisions made by participants in 401(k) plans, there have been no studies of the adequacy of the full set of choices offered to 401(k) participants. This paper analyzes the adequacy and characteristics of the choices offered to 401(k)-plan participants for over 400 plans. We find that only 53% of the plans offer an adequate set of options and that over a 20-year period offering inadequate options makes a difference in terminal wealth of over 53%. We find that funds included in the plans are riskier, but have a slightly higher return, than the general population of funds in the same categories. However, we find that the return difference is roughly equal to the difference in expenses between funds selected by plans and randomly selected funds. We study the characteristics of plans that are associated with adequate investment choices, including an analysis of the use of company stock, plan size, and the use of sophisticated strategies.     

The efficiency of sponsor and participant portfolio choices in 401(k) plans

To evaluate the extent of inefficient behavior in 401(k) pensions, now the dominant form of retirement saving in America, we attribute inefficiencies separately to the employer's menu design versus participant portfolio elections. Results from our analysis of over 1000 plans and a million participants demonstrate that most sponsors offer efficient investment menus, but participants undo this by constructing inefficient portfolios thus reducing their potential retirement wealth by one-fifth. Because participants are the main source of inefficient pension investment choices, strategies targeting their behavior may be useful — including improved default investment strategies or educational programs. We also show that the number of options offered is less important than the range of funds provided when designing 401(k) menus.     

The effects of employer matching and income risk in 401(k) plans

Using a simple life-cycle model, this paper studies the effects of employer matching and income risk on employees' 401(k) participation and contributions. We find that both employer matching and income risk have a large impact on employee decisions. The effects differ for different income and age groups.     

Institutional difference and foreign direct investment location choice: Evidence from China

Resting upon an extensive data set on foreign invested enterprises (FIEs) in China, we investigate the role of institutional difference in determining the locational choice of foreign direct investment (FDI). Estimation results using firm-level discrete choice model suggest that FIEs from source countries that are more remote institutionally from the Chinese mainland exhibit a higher degree of sensitivity to regional economic institutions in their choice of FDI location. Furthermore, we find that FIEs coming from countries with better institutions than China are more sensitive to the institutional difference. Interestingly, we find that the deterrent effect of institutional distance on FDI entry is mitigated for FIEs coming from countries with more ethnic Chinese individuals in their overall populations.     

Security Returns and Tax Aversion Bias: Behavioral Responses to Tax Labels

This article studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.     

Employer matching and 401(k) saving: Evidence from the health and retirement study

Employer matching of employee 401(k) contributions is often touted as a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent econometric specification of 401(k) saving and estimates the determinants of saving accounting for non-linearities in the household budget set induced by matching. The participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) participation by 5 percentage points. The parametric and semi-parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $365 (in 1991 dollars). Overall, the analysis reveals that the 401(k) saving response to matching is quite inelastic, and, hence, matching is a rather poor policy instrument with which to raise retirement saving.     

Assessing efficiency and investment opportunities in commodities: A time series and portfolio simulations approach

This paper investigates the informational efficiency hypothesis in the short and long term for four major commodity markets (oil, gas, electricity, and coal) from January 1997 to January 2016. Unlike previous studies, we provide a more concise comparative analysis by focusing on different classes of commodities for a large sample, including 5 developed and 3 emerging regions and covering 46 countries. We apply different parametric and non-parametric econometric tests. Our study provides two interesting findings. First, we show that commodity markets are informationally inefficient in the short term. Our portfolio simulations highlight that commodities might provide “good” investment opportunities, but those opportunities vary according to commodity class and regions. Second, we show that most commodity markets become informationally efficient in the long term, thereby reducing investors' interest for the duration. Thus, commodity markets might be used to hedge investor’s portfolios, particularly for speculators and chartists in the short term, while these investments might not be appealing in these markets in the long term.     

Investor sentiment and the financial crisis: a sentiment-based portfolio theory perspective

The article proposes a portfolio model subjected to a constraint that captures the investor’s goal, with maximum estimation of expected return that is affected by investor sentiment. And we give a solution of the portfolio model by exploring the geometric features. Furthermore, we discuss the relationship between investor sentiment and the financial crisis by analysing the optimal allocation. The results show that: when investor sentiment is low enough, the investor should reject the investment, this condition leads the depression financial market to prevail, then the financial crisis erupts; when investor sentiment is modest, the financial crisis is difficult to erupt unless the decline of investor sentiment is quick and deep; but there is a special status that the financial crisis is caused by other factors rather than by investor sentiment; and only improving investor sentiment cannot move away from the financial crisis.     

Taxation and household portfolio composition: US evidence from the 1980s and 1990s

This paper explores the relationship between household marginal income tax rates, the set of financial assets that households own, and the portfolio shares accounted for by each of these assets. It analyzes data from the 1983, 1989, 1992, 1995, and 1998 Surveys of Consumer Finances and develops a new algorithm for imputing federal marginal tax rates to households in these surveys. The empirical findings suggest that marginal tax rates have important effects on asset allocation decisions. The probability that a household owns tax-advantaged assets, such as tax-exempt bonds or assets held in tax-deferred accounts, is positively related to its tax rate on ordinary income. In addition, the portfolio share invested in corporate stock, which is taxed less heavily than interest bearing assets, is increasing in the household’s ordinary income tax rate. Holdings of heavily taxed assets, such as interest-bearing accounts, decline as a share of wealth as a household’s marginal tax rate increases.     

401(k) matching contributions in company stock: Costs and benefits for firms and workers

This paper tests for important determinants of why some employers provide matching contributions for 401(k) plans in company stock. We find that firms that match in company stock have lower stock price volatility and lower bankruptcy risk and are also more likely to offer a defined benefit plan, consistent with a recognition that imposing a concentrated portfolio can be costly for employees. Evidence also indicates that firms match with company stock to help deter takeovers by putting stock into friendly hands. Simulation results suggest that while portfolio-optimizing employees are made worse off by having their match restricted to company stock, sufficiently risk tolerant employees who follow naïve investment strategies might prefer a 401(k) plan at a company with a company stock match to a plan at a company with an unrestricted match.     

Financial liberalization,private investment and portfolio choice: Financialization of real sectors in emerging markets

Using firm level panel data, we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets, Argentina, Mexico and Turkey. Employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s, we suggest that rather than investing in irreversible long-term fixed investments, firms may choose to invest in reversible short-term financial investments depending on respective rates of returns and the overall uncertainty in the economy. The empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments.     

Commitment and discretion in contracts: theory and evidence from retirement plans*

We consider a firm's problem of incentivizing its workforce through relational contracts, when workers effectively face a shorter time horizon due to possible separation shocks. Commitment issues then generate a trade-off between efficiency and distribution, which affects both performance and profits. Profits under relational contracting can exceed those under formal contracting, despite lower performance, when discounting is moderate, firm bargaining power is weak, and shocks are likely. Using a matched employer–retirement plan dataset, and interpreting discretionary profit-sharing plans and employee stock ownership plans as relational and formal contracting, respectively, we find some support for our predictions.     

State wage-payment laws, the Pension Protection Act of 2006, and 401(k) saving behavior

I show empirically that state wage-payment laws, which forbid deductions from wages and salaries without the written permission of the employee, constituted a binding constraint on firms’ choices to adopt automatic enrollment in 401(k) plans prior to 2006.     

个人金融产品的特性:不同角度的考察及启示

从梳理和界定个人金融产品的基本概念人手，从不同角度描述与分析了个人金融产品的特性及其所揭示的市场营销含义，并以此为基础，对我国金融机构开展个人金融业务过程中的缺陷和不足进行探讨。     

Role of government in trade and investment boom: lessons from East Asia

This paper extends the empirical analysis on Rodrik’s (1995a) domestic investment‐led export growth model for East Asia to nine East Asian countries for a longer time period, 1960 through 2004, and tests whether openness Granger‐caused investment or vice versa. Our results suggest that there can be no single conclusion about the role of investment in East Asia. Causality has also changed for some countries in different time periods. We question the exogeneity of the investment boom in East Asia, a key assumption made by Rodrik. Government’s incentives encouraged investment in export industries through different channels.     

城乡统筹的公共财政检讨与政策取向

在市场经济条件下,公共财政既是政府经济干预的重要工具,也是政府实施他干预的重要载体。从一定意义上讲,公共财政是推动城乡统筹的经济体制基础和保障。本文从财政角度分析我国城乡分割的形成机理,通过实践反思公共财政体制框架下,实施城乡统筹取向的财政政策。     

Noise traders and smart money: Evidence from online searches

Traditional finance theory considers that the impact of noise traders' attention on asset prices is offset by attention from smart investors. This paper uses online search data to study the influence of noise traders and smart investors on stock returns and volatility. Adopting an original approach, we construct a proxy for smart investor attention based on investors' online search behavior provided by Wikipedia Page Traffic. We combine this new measure with a standard measure of noise traders' attention as proxied by Google Search Volume Index. We show for a sample of 87 French firms over the period 2008–2018 that only noise traders' attention influences stock returns. Noise traders' attention increases volatility by creating an extra risk that is priced into the market. Conversely, smart investors' attention decreases volatility because their presence stabilizes stock prices by reducing uncertainty. Our empirical results support a behavioral explanation of stock prices.     

The new IMF approach to capital account management and its blind spots: lessons from Brazil and South Korea

As emerging economies experience a boom in capital inflows, governments are increasingly concerned about their downsides. Even the IMF (International Monetary Fund), long a stalwart proponent of financial liberalization, has engaged in a new debate on capital flow management. Drawing lessons from empirical case studies on Brazil and South Korea, this paper finds that the new IMF framework remains insufficient in two main aspects. First, by defining ‘capital flow management measures’ (CFMs) as a temporary instrument embedded in an overall strategy of financial opening, the organization insists on the general advantages of financial liberalization, which poses serious limits to emerging economies’ policy space. Second, the Fund keeps on stressing a separation of prudential financial regulation, which should be permanent, and temporary CFMs. Yet, the case studies presented here show that, especially for emerging markets with rather open and sophisticated domestic financial markets, both types of measures are interdependent and overlapping. Additionally, we demonstrate the relevance of a third type of regulation, lying on foreign exchange (FX) derivatives instruments, which may also be required to effectively manage foreign investors’ portfolio reallocations and their impact.     

Pluralism(s) in economics: lessons from complexity and innovation. A review paper

My analysis focuses on two main observations. First, many competing schools of thoughts are currently present in economics with no predominant paradigm. We are experiencing an era of pluralism (Davis J Econ Methodol 14(3):275–290, 2007, Camb J Econ 32:249–366, 2008; Colander 2000; Colander et al. J Polit Econ 16(4):485–499, 2004). The term ‘pluralism’ is extremely interesting since, as I will show, it has different dimensions to it. These offer insights into interpreting the tangled universe of the economics. Second, there is a progressive intertwining of innovation economics with complexity economics, which I argue provides an instance of the above-described shift toward pluralism.     

Shortfall minimization and the Naive (1/N) portfolio: an out-of-sample comparison

Naive portfolio selection, wherein an investor allocates an equal portion of their wealth to the field of candidate assets, is a simple ad-hoc way to create a portfolio. Naive portfolio selection contrasts to the many sophisticated portfolio selection rules that are optimal with respect to a specific portfolio allocation objective and which often perform well in sample. However, some recent research finds that many of these ‘optimal’ portfolio allocation mechanisms perform no better than naive diversification in out-of-sample data. This paper extends this line of inquiry by comparing the out-of-sample performance of naive portfolio selection to several recently developed shortfall-minimizing portfolio selection methods. The results corroborate the prior findings that optimal portfolio methods struggle to beat the naive portfolio in out-of-sample environments.