Session Topic: Individual Investors and Mutual Funds

Summary . The modern theory of finance suggests that most investors should put part or all of their money into a “market portfolio” mixed with borrowing or lending. Empirical evidence generally supports the theory, but there are some unanswered questions about the composition of the best market portfolio, about the apparent attractiveness of low risk stocks relative to high risk stocks, and about ways of minimizing transaction costs. Attempts to create a fund based on these principles and to make it available to a large number of investors have uncovered some important problems. Legal costs due to government regulation, the costs of managing a fund, and especially the costs of selling it are all much higher than one might expect. Despite these problems, efforts to create such funds seem destined for eventual success.     

International capital market equilibrium with investment barriers

This paper outlines models of capital market equilibrium when there are explicit barriers to international investment in the form of a tax on holdings of assets in one country by residents of another country. There is a corresponding subsidy on short positions in foreign assets. Asset prices deviate from the predictions of the world capital asset pricing model. Investors do not hold a mixture of national market portfolios, but the mix of risky assets is the same for every investor in a country. Optimal portfolios tend to be heavy in domestic assets, and light in foreign assets. Tax free investors, however, tend to hold assets anywhere in the world that are taxed heavily. Estimates of the magnitude of the average tax (or the magnitude of effective barriers to international investment) can be made by comparing the average return on the minimum variance zero β portfolio, z, with the average across countries and time of the short-term interest rate. When barriers are ineffective, the expected return on portfolio z will be the average short-term interest rate, and the world capital asset pricing model will hold.     

Policy responses to major disturbances of the 1970s and their transmission through international goods and capital markets

Zusammenfassung Wirtschaftspolitische Reaktionen auf die wichtigsten St?rungen in den 70er Jahren und ihre übertragung durch die internationalen Waren- und Kapitalm?rkte. — In diesem Aufsatz werden die wichtigsten St?rungen untersucht, die die acht gr?\ten Industriel?nder in den 70er Jahren betroffen haben, sowie die binnen- und au\enwirtschaftlichen Ziele dieser L?nder, ihre wirtschafts- und zahlungsbilanzpolitischen Gegenma\nahmen und die Reaktionen des Marktes auf St?rungen und wirtschaftspolitische Ma\nahmen. Es zeigt sich, da\ die Wirtschaftspolitik und die Reaktion des Marktes die expansiven Wirkungen des Dollarabflusses in den Jahren 1971–72 verst?rkten, weil dieser sich in einem zyklischen Tief ereignete. Andererseits wurde durch sie die kontraktive Wirkung der ?lpreiserh?hung von 1974 gemildert, da diese nach einem zyklischen Hoch eintrat. Au\erdem werden in diesem Aufsatz die Wirkungen flexibler Wechselkurse bewertet, und zwar mit unterschiedlichen Ergebnissen, weil man sich zu sehr auf die Wirkungen flexibler Kurse verlassen hat.

---

Résumé Les réponses de politique aux perturbations majeures des années soixante-dix et leur transmission par les biens internationaux et les marchés des capitaux. — L’article examine les perturbations majeures qui affectuaient les huit pays les plus industrialisés pendant les années de soixante-dix, leurs buts internes et externes de politique, leurs réactions macroéconomiques et de politique de balance des paiements, et les réponses de marché à ces perturbations et politiques. Nous concluons que les politiques économiques et les réponses de marché magnifiaient les effets expansionnistes de l’émanation de dollar 1971–72 parce qu’il se passait pendant un creux cyclique d’une vague. Les réponses politiques et de marchés affaiblissaient l’impact contractionniste de l’augmentation de 1974 prix de pétrole, comme il se passait après un sommet cyclique. Nous évaluons les effets des taux de change flottants et trouvons des résultats mixtes, parce qu’on a placé trop de confiance en eux.

---

Resumen Respuestas de politica a las perturbaciones más importantes de los a?os 1970 y su transmisión a través de bienes internacionales y de mercados de capitales. — En este artículo se examinan las perturbaciones más importantes que han afectado a los ocho países industrializados más grandes durante el decenio de 1970, sus objetivos de política interna y externa, sus reacciones macroeconómicas y de balanza de pagos y las respuestas del mercado a estas perturbaciones y políticas. Se concluye que estas políticas económicas y respuestas del mercado magnificaron los efectos expansivos de la evasión de dólares entre 1971 y 72, porque coincidió con un valle cíclico. Las políticas y respuestas del mercado amortiguaron el impacto de contracción del aumento de precios del petróleo de 1974, debido a que vino después de un alto ciclico. Se evalúan los efectos de tasas de cambio flotantes y se encuentra que han tenido un resultado ambiguo, porque se ha confiado demasiado en ellas.

     

Supervision and cost efficiency in banking

This paper suggests a link between bank operating efficiency and federal supervisor. Since supervisory priorities can vary by the context in which the supervisor was conceived, resulting differences in supervisory policies and procedures may underlay differences in the operating efficiency of their supervised banks. The effect on bank operating expenses is estimated at the individual bank level for each of four size strata using a translog cost function, controlling for bank characteristics and the impact of scale and scope economies. Results generally support a conclusion that bank operating cost differences exist by supervisor, except in the largest size stratum.The authors gratefully acknowledge helpful comments and suggestions from Seungmook Choi, Cary Collins, Curt Hunter, Bradford D. Jordan, Richard H. Pettway, John D. Stowe, Larry Wall, and Jim Wansley, and others at the University of Missouri and Northern Illinois University.     

Means matter, but variance matter too: Decomposing response latency influences on variance heterogeneity in stated preference experiments

Response time latencies have been shown to influence consumer’s choice behaviour in choice-based-conjoint studies. The literature has shown that response time latencies affect the mean outputs of parameter estimates derived from models of discrete choice. In this paper, we add further insight into the influences response time latencies have on such models by modelling latent response information associated with the variance of random parameter distributions through parameterisation of variance heterogeneity (or heteroskedasticity). We demonstrate that response time latencies influence not only the means of random parameter distributions, but also the variances, and that failure to account for both may result in incorrect model inferences being drawn.     

Human resource development in remote island communities: an evaluation of tour‐guide training in Vanuatu

About 30% of visitors to Vanuatu visit the outer islands, where ecotourism has recently emerged as a small‐scale but significant activity. In the face of increasing competition from comparable Asia–Pacific destinations, there has been pressure on tourism operators and the Vanuatu Government to improve product quality through mechanisms such as the development of high‐quality tours. One way to enhance product quality is through the provision of appropriate professional training for tourism sector employees, including local tour guides. The paper outlines a tour‐guide training programme delivered on the outer islands, which received financial assistance from several foreign aid agencies. The programme is an instructive example of an attempt to implement a human resource strategy in a developing country arising from the recommendations of a national tourism masterplan that sought the active involvement of international funding agencies in the implementation phase. The paper evaluates the effectiveness of the training programme and outlines the challenges of programme delivery. Copyright © 2002 John Wiley & Sons, Ltd.     

The impact of make-take fees on market efficiency

Review of Quantitative Finance and Accounting - Stock exchanges structure their trading fees to subsidize liquidity by offering “make” rebates for providing liquidity through limit...