Student Perceptions of the Insurance Profession

To attract students to the risk management and insurance profession, strategies need to be developed to overcome biases in their perceptions of the profession. This study attempts to determine some of those perceptions of students—specifically a group of business career high school students and a group of college students enrolled in an introduction to business course—about the personality traits of insurance professionals. A Personality Factor Questionnaire previously used extensively in other research was used to measure differences in student perceptions of personality profiles of different professions. We also measured how student characteristics such as age, sex, and expected college major influence student perceptions of these traits. The overall general conclusion was that perceptions of the profession are not as negative as many imagine, but do require some substantive work to improve, even among students seeking business careers.     

Tax liens: a novel application of asset pricing theory

Although relatively obscure, the market for distressed real estate tax liens exists in over 30 U.S. states, with a market size estimated to be around 20 billion dollars. While this niche asset class is relatively unknown to academics, internet advertising hypes tax liens to the populace as providing extraordinary returns. Not yet scientifically studied, this market provides a fertile and untouched arena for the application of asset pricing theory. Using insights from several areas of asset pricing, we formulate and test a pricing model for tax liens. The empirical evidence supports the pricing model, the (increasing) competitiveness of the tax lien market, and an unfair tax auction bidding mechanism for property owners that may provide extraordinary returns to investors, lending some credibility to the industry claims. We suggest avenues for extensions and further research.     

Information reduction via level crossings in a credit risk model

This paper provides an alternative credit risk model based on information reduction where the market only observes the firm’s asset value when it crosses certain levels, interpreted as changes significant enough for the firm’s management to make a public announcement. For a class of diffusion processes we are able to provide explicit expressions for the firm’s default intensity process and its zero-coupon bond prices.      

International Evidence on Cash Holdings and Expected Managerial Agency Problems

This article uses managerial control rights data for over 5000firms from 31 countries to examine the net costs and benefitsof cash holdings. We find that when external country-level shareholderprotection is weak, firm values are lower when controlling managershold more cash. Further, when external shareholder protectionis weak we find that firm values are higher when controllingmanagers pay dividends. Only when external shareholder protectionis strong do we find that cash held by controlling managersis unrelated to firm value, consistent with generally prevailingU.S. and international evidence.     

Relationship Banking, Fragility, and the Asset-Liability Matching Problem

We address a fundamental question in relationship banking: whydo banks that make relationship loans finance themselves primarilywith core deposits and when would it be optimal to finance suchloans with purchased money? We show that not only are relationshiploans informationally opaque and illiquid, but they also requirethe relationship between the bank and the borrower to endurein order for the bank to add value. However, the informationalopacity of relationship loans gives rise to endogenous withdrawalrisk that makes the bank fragile. Core deposits are an attractivefunding source for such loans because the bank provides liquidityservices to core depositors and this diminishes the likelihoodof premature deposit withdrawal, thereby facilitating the continuityof relationship loans. That is, we show that banks will wishto match the highest value-added liabilities with the highestvalue-added loans and that doing so simultaneously minimizesthe bank's fragility owing to withdrawal risk and maximizesthe value the bank adds in relationship lending. We also examinethe impact of interbank competition on the bank's asset-liabilitymatching and extract numerous testable predictions.     

Reflections on the general theory of second best at its golden jubilee

The origin of the second best article is described and criticisms assessed. Distortions making impossible the achievement of either first or second best optima are outlined. Attempts to establish the applicability of first best rules are criticised, as are general rules for making piecemeal efficiency improvements. Both often use models containing empirically invalid assumptions and a selected few of the full set of distortions. Practical policy advice requires more parochial objective functions than community welfare; must rely on formal and appreciative theory, empirical evidence, and large doses of judgment; and should concentrate on making piecemeal improvements in context-specific situations.     

Homeownership as a Constraint on Asset Allocation

Personal preferences and financial incentives make homeownership desirable for most families. Once a family purchases a home they find it impractical (costly) to frequently change their ownership of residential real estate. Thus, by deciding how much home to buy, a family constrains their ability to adjust their asset allocation between residential real estate and other assets. To analyze the impact of this constraint on consumption, welfare, and post-retirement wealth, we first investigate an individual’s optimal asset allocation decisions when they are subject to a “homeownership constraint.” Next, we perform a “thought experiment” where we assume the existence of a market where a homeowner can sell, without cost, a fractional interest in their home. Now the housing choice decision does not constrain the individual’s asset allocations. By comparing these two cases, we estimate the differences in post-retirement wealth and the welfare gains potentially realizable if asset allocations were not subject to a homeownership constraint. For realistic parameter values, we find that the homeowner would require a substantial increase in total net worth to achieve the same level of utility as would be achievable if the choice of a home could be separated from the asset allocation decision. The robustness of the analysis is evaluated with respect to the model’s parameters and initial state variables. We find that changes in the values of the constraint (i.e., the value of the home) and the expected real rate of home value appreciation are the only state variables or parameter that is associated with a large change in asset allocation and/or the burden imposed by the housing constraint. This finding suggests the importance of a detailed examination of the impact of inter-regional differences in home prices and expected rates of appreciation on asset allocation and post-retirement wealth.     

Mittlerer quadratischer Prognosefehler bei der Prognose des Abwicklungsergebnisses mittels der Chain-Ladder-Methode

Often in non-life insurance claims reserves are the largest position on the liability side of the balance sheet. The determination of adequate claims reserves in two consecutive accounting years leads to the so-called development result, which is defined as the difference of two successive predictors for the claims reserves. If the predictors for the claims reserves are unbiased the expected development result is equal to zero. However, since in claims reserving one predicts future payments the observed development result will in general deviate from the expected value. In the present paper we analyze this deviation. In an example we discuss the results.     

International Comparisons of Banking Efficiency

The banking industry around the globe has been transformed in recent years by unprecedented consolidation and cross‐border activities. However, international consolidation has been considerably less than might have been expected in developed nations—such as long‐term members of the EU—where barriers to entry have been significantly lowered. In contrast, foreign‐owned banks have generally achieved much higher penetration in developing nations. We investigate the extent to which these differences may be related to bank efficiency concerns by reviewing and critiquing over 100 studies that compare bank efficiencies across nations. The studies are in three distinct categories: (1) comparisons of bank efficiencies in different nations based on the use of a common efficient frontier, (2) comparisons of bank efficiencies in different nations using nation‐specific frontiers, and (3) comparisons of efficiencies of foreign‐owned versus domestically owned banks within the same nation using the same nation‐specific frontier. The research—particularly the findings in the third category—is generally consistent with the hypothesis that efficiency differences help to explain the consolidation patterns. The efficiency disadvantages of foreign‐owned banks relative to domestically owned banks tend to outweigh the efficiency advantages in developed nations on average, and this situation is generally reversed in developing nations, with notable exceptions to both findings. We also stress the need for further research in this area.     

A learning methodology using Matlab/Simulink for undergraduate electrical engineering courses attending to learner satisfaction outcomes

Learner-centred approaches follow the prevailing tendency in modern University reforms which are primarily concerned about “how people learn”. The methodologies can be learner-centred in the sense of placing the student as the main actor of the teaching–learning process by increasing his interactivity and participation, but also considering what is relevant for the student by measuring the learner satisfaction. In order to promote both aspects, this paper proposes a synchronous software-based active methodology that makes use of the simulations to show a virtual scenario to the students and challenge them to predict and discuss the evolution of the scenario. The proposed methodology improves the visual interface, promotes discussion both among students and with the teacher in a brainstorming stage and shows real-world examples. This software-based methodology has been implemented into an Electric Machinery course at the University of Seville (Spain), and the evaluation has been carried out considering both the affective and cognitive domains. Principal components analysis proves to be useful to highlight the dimensions with a higher influence on learner satisfaction and the affective and cognitive results confirm the successful implementation of the proposal.