Which factors support trust in the recommendation process of pension products? Trust and pension products

During the financial crisis of 2008/2009, financial institutions such as banks and insurance companies have lost trust of their customers. In the recommendation process of pension products, trust plays an important role since cash flows from retirement products accrue decades ahead. Using the results from a survey, we find that financial institutions still struggle to deliver trust to their customers when they recommend different categories of retirement products. Other recommending parties such as academic financial experts or close friends, however, are able to establish a high level of trust. We therefore investigate factors of alternative channels to establish trust such as the recommendation process or product features.

     

Ex Post Settling Up in Cash Compensation: New Evidence

This paper provides new evidence on whether and how boards solve costly ex post settling up to recover CEO cash compensation for unrealized gains that fail to materialize. Our analyses are motivated by the likely expanding role for ex post settling up as the risk of compensating executives for unrealized gains that may never materialize increases in a more intangibles‐based economy, as well as by the conflicting evidence of prior research. We provide evidence consistent with ex post settling up by (i) using alternative truncation methods to derive observations most likely to fall within the theoretically motivated incentive zone; (ii) replicating and reconciling the conflicting results of prior research that supports (Leone et al. 2006) and fails to support (Shaw and Zhang 2010) ex post settling up; (iii) using Incentive Lab data with contract‐specific information, allowing strong identification of observations in the incentive zone; and (iv) documenting predictable cross‐sectional variation, with ex post settling up being more pronounced for firms with stronger corporate governance, less conservative accounting earnings, and a larger proportion of total pay in the form of cash compensation. Overall, we conclude that evidence is strong in support of the ex post settling up hypothesis.     

The Determinants of Subprime Mortgage Performance Following a Loan Modification

We use vector error correction models to examine the interdependence between the high and the low price tiers during the latest housing market boom and bust. For 118 of the 364 US statistical areas analyzed, the tiered price indexes are bound by a long-run relationship. In general, low tier homes appreciated more than high tier homes in the past two decades. In contrast to previous periods of high volatility, however, low tier homes appreciated more during the boom and lost more value during the bust of the market. We find a shift in the long-run equilibrium during the bubble —the cointegration parameter that ties the tiers together is greater in absolute value during the bubble period compared to the periods of more moderate appreciation and depreciation rates. Moreover, the shift in the long-run equilibrium can be explained by differences in subprime originations across housing markets. We also find that short run price dynamics is driven by momentum in both segments of the market.