Wealth portfolios and elite professional athletes

Defined contribution pension plans typically rely on some type of lifecycle allocation investment strategy. This approach has recently been shown to be sub-optimal due to the portfolio size effect. The terminal wealth of individuals with steadily increasing earnings over time is significantly less when using a lifecycle strategy compared with a simple contrarian approach. The adverse effect of an inappropriate asset allocation strategy for investors with unorthodox earnings profiles, such as for professional athletes, can be greatly magnified. We demonstrate that strategies that exploit the portfolio size effect vastly dominates terminal wealth earned using lifecycle strategies for individuals who experience unorthodox earning profiles, particularly those generating high investable incomes early in life. While the lifecycle strategy contains some attractive features relating to risk aversion and diminishing utility from wealth, we demonstrate that for unorthodox earnings profiles the case for taking advantage of the portfolio size effect is particularly strong.     

Expanding the scope of prosumption: A framework for analysing potential contributions from advances in materials technologies

A framework for analysing advances in materials technologies is introduced. This framework is used to underpin forecasting related to the expansion of prosumption. The term, prosumption, refers to the social change of individuals being directly involved in the design and production of the goods that they consume. It is explained why expanding the scope of this important social change depends much upon advances in materials technologies. The framework that is introduced addresses the limitations of extant methods. Firstly, the framework is oriented specifically to prosumption. It addresses fundamental factors that determine whether advances in materials technologies can better enable expansion of prosumption: chemical compositions, internal microstructures, shaping complexities, and surface characteristics. Secondly, application of the framework is not restricted to a particular type of materials technologies. Thirdly, its format is straightforward. The framework is explained through two cases of forecasting concerned with the expansion of prosumption. These forecasts were made in 2003, and were found to be accurate during subsequent years.     

An Economic Analysis of the Returns to Canadian Swine Research: 1974–97

This paper reports a new set of estimates of the returns to swine research in Canada. These estimates are obtained using Agriculture and Agri‐Food Canada's Canadian Regional Agricultural Model (CRAM). Positive Mathematical Programming is incorporated into the model for use in this study. The CRAM allows the effects of supply shifts from technological change in the hog industry to interact with product and factor market conditions in the rest of Canadian agriculture. Extensive sensitivity analysis is conducted to examine the robustness of the return estimates under variations in some of the key assumptions employed in the analysis. The costs of public and private sector swine research are estimated. Public sector research costs are inclusive of the marginal excess burden of taxation. Overall, the estimated benefits from Canadian swine research are high relative to the estimated costs for the time period considered. Previous estimates of the returns to Canadian swine research were obtained by Huot et al. (1989) with a partial equilibrium model that did not allow for intra‐sectoral resource use adjustments. The estimated returns obtained in the present study are generally higher than those obtained by Huot et al. For example, the estimates obtained from the direct application of the econometrically estimated supply function in this study gave an internal rate of return of about 124% and a benefit‐cost ratio of 22.4 to 1. Huot et al reported comparable estimates of about 43% for the internal rate of return and 6–7 to 1 for the benefit‐cost ratio. The differences in returns are not solely attributable to the use of a multi‐market versus a single‐market partial equilibrium approach. There are also differences in the estimates of the marginal excess burden of taxation between the two studies. L'analyse que void présente une nouvelle série d'estimations quant au rendement de la recherche porcine au Canada. Ces estimations dérivent du Modèle d'analyse régionale de l'agriculture du Canada (MARAC) du ministère canadien de l'Agriculture et de l'Agroalimentaire. Aux fins de la présente étude, on avait intégré au modèle une programmation mathématique positive. Le MARAC autorise l'interaction entre les retombées d'une modification de l'offre attribuable au virage technologique de l'industrie porcine et les conditions du marché des produits et des facteurs dans le reste de l'agriculture canadienne. Les auteurs ont effectué une analyse de sensibilité poussée en vue d'établir la robustesse de leurs estimations quand variaient quelques‐unes des principales hypotheses de l'analyse. On a estimé le coût de la recherche sur les pores poursuivie par les secteurs public et privé. Dans le secteur public, le coût de la recherche incluait une charge fiscale légérement excessive. Dans l'ensemble, la recherche sur les porcs entreprise au Canada a rapporté beaucoup comparativement à ce qu'elle a coûté pendant la période à l'étude. Les estimations antérieures, établies par Huot et ses collaborateurs (1989), venaient d'un modèle àéquilibre partiel ne permettant aucun ajustement pour l'utilisation intra‐sectorielle des ressources. Les revenus estimés ici sont généralement plus élevés que ceux de Huot et de ses collaborateurs. Ainsi, une application directe de l'offre estimée par des méthodes économétriques à l'analyse donne un taux de rendement interne d'environ 124 % et un indice de rentabilité de 22,4 pour 1. À titre de comparaison, Huot et ses collaborateurs rapportent des résultats d'environ 43 % pour le taux de rendement interne et de 6 à 7 pour 1 en ce qui concerne l'indice de rentabilité. Pareil écart ne résulte pas uniquement du choix d'un modèle àéquilibre partiel reposant sur plusieurs marchés au lieu d'un seul; on relève aussi des variations dans l'estimation du léger excès de la charge fiscale entre les deux études.     

Non-Parametric Estimation of Technical Progress

The modelling of technical progress in a production economy is a problem of great interest. Non-parametric approximation of technical progress through the use of an adaptively fitted spline function is presented as an attractive solution. An application demonstrates the sensitivity of estimates of technical progress and price elasticities to the specification of the time trend.     

Building the case for financial education

The need for financial education among Americans is often demonstrated with alarming rates of bankruptcy, high consumer debt levels, low savings rates, and other negative outcomes that may be the result of poor family financial management and low financial literacy levels. The collective response by public and private organizations to the accepted and often demonstrated need for financial education has been impressive in size and scope. This article provides an overview of the wide range of programs aimed at improving Americans’ financial literacy as well as a short review of the current evidence of the effectiveness of financial education programs. We advocate for the adoption of a comprehensive framework or approach to evaluation to assist those currently delivering, and planning to deliver, financial education and highlight some of the key challenges. A five‐tiered approach to program evaluation is described and outlined to provide a general framework to guide financial education evaluation.     

Online learning of time-varying stochastic factor structure by variational sequential Bayesian factor analysis

Investment tasks include forecasting volatilities and correlations of assets and portfolios. One of the tools widely utilized is stochastic factor analysis on a set of correlated time-series (e.g. asset returns). Published time-series factor models require either sufficiently wide time windows of observed data or numeric solutions by simulations. We developed a ‘variational sequential Bayesian factor analysis’ (VSBFA) algorithm to make online learning of time-varying stochastic factor structure. The VSBFA is an analytic filter to estimate unknown factor scores, factor loadings and residual variances. The covariance matrix of the time-series predicted by the VSBFA can be decomposed into loadings-based covariance and specific variances, and the former can be expressed by ‘explanatory factors’ such as systematic components of various financial market indices. We compared the VSBFA with the most practiced factor model relying on wide data windows, the rolling PCA (principal components analysis), by applying them to 9-year daily returns of 200 simulated stocks with the ‘true’ daily data-generating model completely known, and by using them to forecast volatilities of long-only and long/short global stock portfolios with 25-year monthly returns of more than 800 stocks worldwide. Accuracy of the forecast covariance matrices is measured by a (symmetrized) Kullback–Leibler distance, and accuracy of the forecast portfolio volatilities is measured by bias statistic, log-likelihood, Q-statistic, and portfolio volatility minimization. The factor-based covariance and specific variances predicted by the best VSBFA are significantly more accurate than those by the best rolling PCA.     

A Method for Transitive and Additive Multilateral Comparisons: A Transitive Bennet Indicator

It is shown how the Bennet indicator (or ``index') can be made transitive. This is particular useful for making consistent (profit, cost, price, quantity) comparisons between firms when there are more than two firms and/or more than two periods. The method is given both statistical and economic justifications.