Benchmarking Risk Management Within the International Water Utility Sector. Part I: Design of a Capability Maturity Methodology

Risk management in the water utility sector is becoming increasingly explicit. However, due to the novelty and complexity of the discipline, utilities are encountering difficulties in defining and institutionalising their risk management processes. In response, the authors have developed a sector specific capability maturity methodology for benchmarking and improving risk management. The research, conducted in consultation with water utility practitioners, has distilled risk management into a coherent, process‐based framework. We identified eleven risk management processes, and eight key attributes with characterise the extent to which these processes are defined, controlled and institutionalised. Implementation of the model should enable utilities to more effectively employ their portfolio of risk analysis techniques for optimal, credible and defensible decision making.     

Do Fund Flow‐Return Relations Depend on the Type of Investor? A Research Note

This study investigates whether the relation between aggregate fund flow and market returns differs between retail and institutional funds. For the retail fund sample, we document a contemporaneous relation between flow and market returns and also find evidence of feedback trading. In contrast, there is little evidence of a relation between flow and market returns for the institutional fund sample. Consequently, it appears that retail and institutional fund investors use different investment strategies, with retail investors following a more naive strategy. We find no evidence of flow inducing price pressure for either type of fund.     

On the best approximation by means of an exponential

1. The question treated in this paper concerns the closeness with which a given function can be approximated by the expression, well known to actuaries, a+βr ^x .     

Modelling Performance Improvement and Switching Behaviour in Team Learning

Accounting educators and agencies have sought to incorporate team learning activities into conventional learning methods. The readiness-assurance process (RAP) of team learning, in which students take quizzes first as individuals and second as members of student teams, has been shown to be effective in this regard. We analyse the RAP with a fixed-effects regression model to identify the factors that contribute to performance improvement and we use ordered logit regression to estimate, probabilistically, switching behaviour within student teams. A longitudinal study was conducted over the course of a semester in which 101 undergraduate accounting students, comprising 22 teams, completed six quizzes. Within-team knowledge disparity was shown to be a significant indicator of performance improvement, and individuals appeared more likely to switch their answers after the first quiz. There were no significant effects for either performance or switching associated with demographic measures of sex and English fluency. Implications for accounting educators are discussed.     

Drivers of Teaching Effectiveness: Views from Accounting Educator Exemplars in Australia

Abstract

This paper summarizes the views, obtained via a survey instrument created by the authors and reported in studies by Stout and Wygal, of 22 accounting educator teaching exemplars from Australia. Each of these individuals has been cited for teaching excellence through receipt of one or more formal teaching awards. The paper responds to calls in Australia for increased attention to the dimensions of teaching effectiveness and to initiatives in the United States calling for a broader sharing of information among members of the academy regarding the characteristics of teaching effectiveness. Little direct evidence from the field of accounting education is available to date regarding such characteristics or antecedents of teaching effectiveness in the student learning environment. Our research therefore extends in a fundamental way the work of Stice and Stocks and Stout and Wygal. Specifically, perceptions from a sample of award-winning non-US faculties regarding the ‘drivers of teaching effectiveness’ in accounting education are recorded and analyzed. In decreasing order of perceived importance, drivers of teaching effectiveness are: having a student focus; commitment to teaching (as a profession); high levels of preparation/organization; the ability to link subject matter to the practice environment; and, instructor skills and attributes. This paper adds to our understanding of the drivers of teaching effectiveness and begins the process of creating a worldwide knowledge base in accounting education. The paper should be of interest to accounting faculty members interested in improving their teaching effectiveness and/or mentoring junior faculty members.     

Statistical Independence and Fractional Age Assumptions

Abstract

This paper considers in some detail the issue of statistical independence of the curtate future lifetime and the fractional part of the future lifetime of a general status.

Statistical independence is often employed in actuarial contexts, primarily because it leads to simple relationships between quantities of interest and statistical information that is of a discrete nature, such as a life table. The uniform distribution of deaths (UDD) assumption is the most commonly used because of its simplicity and intuitive appeal, but it can be somewhat restrictive. For example, all deaths or withdrawals may be assumed to be at a particular point in the year such as the middle; assumptions of this type are often made in a multiple decrement context. This paper attempts to unify these assumptions and extend their applicability in an actuarial context.

The conditions for independence need to be stated carefully, and the last-survivor status is cited as an example in which failure to do so can lead to erroneous conclusions.

The fractional independence (Fl) assumption is defined, and it is demonstrated that many of the formulas for life table functions that hold under the more restrictive UDD assumption are extended easily to the general Fl case. The simple relationship under UDD between insurances payable on other than an annual mode and those payable at the end of the year of death is extended to the Fl case as well. These results are then used to obtain results for annuities and reserves, again generalizing UDD relationships. It is then demonstrated that many contingent probabilities in the multiple life context are exactly the same under the Fl assumption as under the more restrictive UDD assumption. Finally, a very general result that holds in the multiple decrement context is shown to hold under the Fl assumption.     

The linear growth credibility model

Abstract

The investigation of evolutionary models, i.e. models allowing the risk parameter to change in time, has been one of the main topics of research in credibility theory in the last few years. In the present paper a very special (but rather practicable) evolutionary model is defined and recursions for the credibility estimator are stated.     

Do Trading and Power Operations Mix?

The author uses the case of Constellation Energy to show the challenges, and pitfalls, of running an energy and power trading unit as a profit center within a large power company. Sophisticated trading and risk management operations do play important supporting roles in power companies that face competitive wholesale markets. The complicated dynamics of power prices and the complex operations of generation assets and supply obligations require careful assessment of risks and returns. Trading operations can help extract more value from physical assets and supply obligations. But problems are bound to arise when companies attempt to manage the trading function as a stand‐alone profit center. Determining the amount of capital required for proprietary trading portfolios and other elements of trading businesses is complicated. It is easy to underestimate the capital required and so exaggerate the profitability of trading. When profit center trading operations share a balance sheet with other business units—especially units with physical assets like generation—the natural tendency is for the trading operation to piggyback on the capital of the other units. The actual amount of capital consumed becomes apparent only in times of crisis. We have seen this mistake made repeatedly in the short history of trading operations in U.S. power companies. Only truly independent trading operations, with their own balance sheets, can be evaluated clearly and held accountable.     

Alternative Retirement Income Arrangements and Lifetime Income Inequality: Lessons From Australia

This paper examines the implications for lifetime income equality of alternative retirement income arrangements, using the Australian scheme as a benchmark. In Australia, the pay-as-you go financed age pension is means-tested and thereby provides a contrast with those countries where part or all of a basic pension is paid to all aged persons. Many governments are considering an increase in the level of means-testing. The results show that the introduction of a universal pension coupled with significant changes and simplifications to the structure of taxation and superannuation have little effect on the redistributive impact of the tax structure in a life cycle framework. The presence of means-testing appears to have no significant effect on life-time inequality. The results suggest that it is possible to eliminate complexities from the system providing retirement benefits without having any deleterious effect on equity. This revised version was published online in July 2006 with corrections to the Cover Date.