OPTIMAL INVESTMENT STRATEGIES FOR CONTROLLING DRAWDOWNS

We analyze the optimal risky investment policy for an investor who, at each point in time, wants to lose no more than a fixed percentage of the maximum value his wealth has achieved up to that time. In particular, if M _t is the maximum level of wealth W attained on or before time t , then the constraint imposed on his portfolio choice is that W_tα M _t, where α is an exogenous number betweenα O and 1. We show that, for constant relative risk aversion utility functions, the optimal policy involves an investment in risky assets at time t in proportion to the "surplus" W _t - α M _t. the optimal policy may appear similar to the constant-proportion portfolio insurance policy analyzed in Black and Perold (1987) and Grossman and Vila (1989). However, in those papers, the investor keeps his wealth above a nonstochastic floor F instead of a stochastic floor α M _t. the stochastic character of the floor studied here has interesting effects on the investment policy in states of nature when wealth is at an all-time high; i.e., when Wt = M _t. It can be shown that at W _t= M _t, α M _t is expected to grow at a faster rate than W _t, and therefore the investment in the risky asset can be expected to fall. We also show that the investment in the risky asset can be expected to rise when W _t is close to α M _t. We conjecture that in an equilibrium model the stochastic character of the floor creates "resistance" levels as the market approaches an all-time high (because of the reluctance of investors to take more risk when W _t= M _t).     

Ontology and Feminist Theorizing

There are large research, policy, and economic gaps between the ways US researchers and policy makers address the work/family bind amongst middleclass professionals and poor lone mothers. This is clearly seen in US welfare reform, an important piece of work/family legislation in the 1990s. The new rules make the work/family binds worse for low-income, poor mothers and do not alleviate poverty. With its clear expectation that poor mothers be employed, the legislation opens up new avenues to revamp low-wage work for breadwinners and to socialize the costs of caring for family. Closing the literature gap may help to close the policy gap, which, in turn, would promote more income equality.     

The evolution of a national banking market in pre-war Japan

This paper assesses banking market integration in Japan during the period 1889-1938 using annual data on loan rates and spreads between loan and deposit rates. Banks in prefectures further from the financial centers exhibited higher loan rates and greater spreads than banks closer to the center, however, distance effects diminished over time, suggesting that banking markets became increasingly integrated due to declines in transaction costs. Additionally, loan rates and spreads varied negatively with the intensity of local bank competition, consistent with the notion of market segmentation. We speculate that Japan’s anti-competitive banking regulation might have slowed the process of banking market integration.     

Divorce and female labor force participation: Evidence from times-series data and cointegration

The divorce rate in the United States has increased over the last 40 years. This increase was accompanied both by growing female labor force participation and rising female income. These changes were accompanied by a significant reduction in the birth rate for married women. This article uses time-series data and cointegration techniques to determine the direction of causality between these variables. Analysis of the impulse functions show that the divorce rate will increase if either female labor force participation or income increases. Positive innovations to the divorce rate increase the labor force participation rate of married women. Rising levels of income lead to greater female participation in the labor market.     

Medicaid, State Finances, and the Bottom Line for Businesses

Current Medicaid expenditures account for about nine percent of the federal budget and almost a quarter of state budgets and are growing rapidly. State Medicaid budgets are especially vulnerable to recession since states cannot incur large and sustained fiscal deficits. Without change, Medicaid burdens will cause state finances to be diverted from infrastructure and education, with negative effects on the costs and productivity of business. Also affecting business are the state governments experimenting with policies that shift Medicaid burdens to private employers. Simultaneously, the states are initiating efforts to ease Medicaid’s relentless cost increases and address its long-run problems. JEL Classification I180,H720     

Subsidizing Charitable Giving with Rebates or Matching: Further Laboratory Evidence

We examine two different ways to subsidize charitable giving: by a rebate (returning a portion of the donation to the giver) or by a match (adding additional donations to the giver's donation). In previous experimental research, we have shown that participants give more to charity under the match than under an equivalent rebate. The previous within-subject experimental design required participants to make a series of decisions under both types of subsidy. Each decision consisted of an allocation of an endowment between the subject and a charity chosen by the subject from a specified list. This article examines whether that result is an artifact of the previous within-subjects design: subjects may have failed to fully distinguish the two types of subsidy. In the current article, we report results from a between-subjects design, where participants are required to make only one type of decision—involving rebates or involving matching subsidies. Our results confirm previous findings.     

Estimated elasticities from regulated and unregulated cost functions

Estimates of the Allen partial elasticities of substitution (AES) for a regulated cost function [Smith (1981)] are compared with those obtained from an unregulated cost function. The AES for capital and variable inputs are reasonably similar, but those between variable inputs differ significantly.