117,468 research outputs found
Are Household Portfolios Efficient? an Analysis Conditional on Housing.
No full textStandard tests of portfolio efficiency neglect the existence of illiquid wealth. The most important illiquid asset in household portfolios is housing: if housing stock adjustments are infrequent, optimal portfolios in periods of no adjustment are affected by housing price risk through a hedge term and tests for portfolio efficiency of financial assets must be run conditionally upon housing wealth. We use Italian household portfolio data and time series on financial assets and housing stock returns to assess whether actual portfolios are efficient. We find that housing wealth plays a key role in determining whether portfolios chosen by home-owners are efficient
Efficient Portfolios when Housing Needs Change over the Life-Cycle
Get PDFWe address the issue of the efficiency of household portfolios in the presence of housing risk. We treat housing stock as an asset and rents as a stochastic liability stream: over the life cycle, households can be short or long in their net-housing position. Efficient financial portfolios are the sum of a standard Markowitz portfolio and a housing risk hedge term that multiplies net housing wealth. Our empirical results show that net housing plays a key role in determining which household portfolios are inefficient. The largest proportion of inefficient portfolios obtains among those with positive net housing, who should invest more in stocks
Health status and portfolio choice: is their relationship economically relevant?
Get PDFRecent empirical work on individual portfolio choice focuses on the role of the individual's health in making financial decisions. The key idea is that, through precautionary saving or reducing investors' time horizon, health issues make people choose safer financial portfolios. This paper questions the empirical relevance of the link between health and portfolio choice, measured as stockownership and overall fraction of risky securities held. We handle with caution the findings from previous papers and ask whether data from the first wave of the Survey of Health, Aging and Retirement in Europe (SHARE) are able to clarify some of our doubts. We find that only poor self-reported health negatively impacts the portfolio choice, while other health measures (chronic conditions, limitations in daily activities of life, mental health) are irrelevant for investment decisions
Italian Equity Funds: Efficiency and Performance Persistence
No full textHave Italian mutual funds been able to generate “extra-return”? Were some of them able to persistently beat the competitors? In this paper we address these questions and provide a detailed and systematic performance and return persistence analysis of the Italian equity mutual funds. We show that, in general, fund managers have not been able to score extra-performances and only few managers had stock picking ability or market timing ability. This evidence is consistent with the market efficiency hypothesis. Moreover, concerning performance persistence, first, we cannot trace out the hot-hand phenomenon on raw returns. The no persistence effect is fairly robust to: the performance measure, the temporal lag and the different methodology employed for testing persistence. Second, there has not been long-run persistence on risk-adjusted returns (we find a weak evidence of the reversal effect). Finally, the past performance displays weak evidence of the hot-hand effect on risk-adjusted returns on four-month using cross-section tests. However, as soon as we analyse yearly intervals any evidence of persistence disappears
Credit Derivatives: Capital Requirements and Opaque OTC Markets
No full textIn this paper we study the optimal design of credit derivative contracts when banks have private information about their ability in the loan market and are subject to capital requirements. First, we prove that when banks are subject to a maximum loss capital requirement the optimal signalling contract is a binary credit default basket. Second, we show that if credit derivative markets are opaque then banks cannot commit to terminal-date risk exposure, and therefore the optimal signalling contract is more costly. The above results allow us to discuss the potential implications of different capital adequacy rules for the credit derivative markets
Diversification and ownership concentration
No full textWe use a Tobin-Markowitz mean-variance model where the expected returns for the insiders and outsiders are different to analyze the interactions between portfolio choices and investment financing in an economy with benefits of control for entrepreneurs. The need to diversify the portfolio of the entrepreneur conflicts with the small amount of external finance that can be raised when the possibility to expropriate other providers of funds is ample. This implies that a large fraction of investment must be funded with internal sources, thus limiting both diversification and growth opportunities. Entrepreneurs choose to expropriate outside shareholders even if they compete to attract the savings of the outsiders. Nonetheless, when the diversification opportunities are small it is better to let the entrepreneurs choose independently the level of investor protection than let the entrepreneurs choose the common rules of investor protection
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