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Author: Pablo Castaneda Publisher: ISBN: Category : Languages : en Pages : 182
Book Description
Abstract: Social security represents a fertile territory to be explored with the tools of modern finance, as social security systems in general affect the savings decisions of individuals in non trivial ways. This dissertation studies three issues of social security using the tools of continuous-time finance. All these issues are heavily motivated by the Chilean experience in the design of unemployment insurance and pension systems based on individual accounts. The first chapter deals with the incentives embedded in the compensation scheme of a risk averse portfolio manager. The interest in this case is placed on how the compensation scheme changes the investment decisions of the portfolio manager. Using a compensation scheme based on a benchmark portfolio to define the penalties and bonuses of the scheme, it is shown that the scheme motivates the portfolio manager to imitate the investment strategy of the benchmark portfolio whenever this helps the manager to either obtain a bonus or avoid a penalty. The second chapter focuses on the optimal design of benchmark portfolios. The analysis is carried out in the context of a classical Merton type portfolio choice problem. In particular, two related portfolio choice problems are studied, one dealing with the concerns of a representative worker (e.g., unemployment risk), and a second one dealing with the concerns of the portfolio manager in charge of a solidarity fund that finances the payment of a top-up monetary benefit to workers. The results suggest that the benchmark portfolio of the solidarity fund should take into account the optimal investment strategy of the representative worker's problem as the latter represents the funded portion of the liabilities of the former. The third and final chapter focuses on the long term assessment of the financial risk in a defined contribution pension system. In particular, it analyzes a case in which the competitive incentives dissociate the investment objectives of the portfolio manager from those of the pension fund member. The results suggest that the common association between risk and stock volatility may be misleading.
Author: Pablo Castaneda Publisher: ISBN: Category : Languages : en Pages : 182
Book Description
Abstract: Social security represents a fertile territory to be explored with the tools of modern finance, as social security systems in general affect the savings decisions of individuals in non trivial ways. This dissertation studies three issues of social security using the tools of continuous-time finance. All these issues are heavily motivated by the Chilean experience in the design of unemployment insurance and pension systems based on individual accounts. The first chapter deals with the incentives embedded in the compensation scheme of a risk averse portfolio manager. The interest in this case is placed on how the compensation scheme changes the investment decisions of the portfolio manager. Using a compensation scheme based on a benchmark portfolio to define the penalties and bonuses of the scheme, it is shown that the scheme motivates the portfolio manager to imitate the investment strategy of the benchmark portfolio whenever this helps the manager to either obtain a bonus or avoid a penalty. The second chapter focuses on the optimal design of benchmark portfolios. The analysis is carried out in the context of a classical Merton type portfolio choice problem. In particular, two related portfolio choice problems are studied, one dealing with the concerns of a representative worker (e.g., unemployment risk), and a second one dealing with the concerns of the portfolio manager in charge of a solidarity fund that finances the payment of a top-up monetary benefit to workers. The results suggest that the benchmark portfolio of the solidarity fund should take into account the optimal investment strategy of the representative worker's problem as the latter represents the funded portion of the liabilities of the former. The third and final chapter focuses on the long term assessment of the financial risk in a defined contribution pension system. In particular, it analyzes a case in which the competitive incentives dissociate the investment objectives of the portfolio manager from those of the pension fund member. The results suggest that the common association between risk and stock volatility may be misleading.
Author: Adeline Delavande Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Little is known about the degree to which individuals are uncertain about their future Social Security benefits, how this varies within the U.S. population, and whether this uncertainty influences financial decisions related to retirement planning. To illuminate these issues, the authors present empirical evidence from the Health and Retirement Study Internet Survey and document systematic variation in respondents' uncertainty about their future Social Security benefits by individual characteristics. They find that respondents with higher levels of uncertainty about future benefits hold a smaller share of their wealth in stocks.
Author: Tae-Young Pak Publisher: ISBN: Category : Languages : en Pages : 302
Book Description
This dissertation considers household portfolio choice at the end of life-cycle. Three essays examine the importance of uncertainty about medical expenditure risk, cognitive aging, and subjective life horizon, and their role in explaining late-life savings decisions and portfolio allocation. Chapter 2 of the dissertation, entitled "Medical expenditure risk and precautionary saving: Evidence from Medicare Part D", tests the presence of precautionary saving motive to cope with medical expenditure risk. By examining Medicare Part D and it's association with household saving, I demonstrate that social insurance programs discourage private saving by reducing health-related uncertainty. Chapter 3 of the dissertation, entitled "Econometric analysis of cognitive abilities and portfolio choice", explores the role of cognitive aging in explaining a portfolio rebalancing towards safer assets at the end of life-cycle. In this essay, I argue that a gradual decrease in risky asset ownership at the end of life-cycle is in part driven by losing cognitive capabilities. I pay particular attention to testing whether such association is observed only on the extensive margin - that is, changes in ownership, or both risky asset ownership and reallocation across the intensive margin are affected. Causality is tested by exploiting exogenous variation in cognitive health, created by the introduction of Medicare Part D in 2006. Chapter 4 of the dissertation, entitled "Subjective life expectancy and portfolio choice: A household bargaining approach", examines collective decision-making when spouses have an incentive to bargain over portfolio allocation. This article starts with two well-known facts: (a) difference in life expectancy between husband and wife; and (b) age disparity in marriage. These two facts imply that females, on average, face 5 or 6 years longer retirement period to finance, and thus have more incentive to hold risky assets to achieve higher expected capital gains in the long-term. A difference in life expectancy then creates an incentive to bargain over how to allocate savings to risky and non-risky assets. The estimation results indeed show that more financial wealth is allocated to risky assets when a spouse with longer life expectancy has the "final say."
Author: Arthur van Soest Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Studying household investment behavior is essential for understanding the full consequences of old age social security benefits. Using data from six waves of the Health and Retirement Study, we analyze the dynamics of portfolio composition before respondents start claiming social security benefits. We consider ownership as well as amounts held of several types of assets and debts. Using panel data censored regression models, portfolio adjustment is explained on the basis of demographics like gender, race, and year of birth, education level, household income, and perceived social security entitlements. We find that expectations of old age social security benefits have little effect on portfolio decisions, although there is some evidence that higher expected social security benefits lead to more risky financial investments, particularly in IRAs.
Author: R. Glenn Hubbard Publisher: ISBN: Category : Languages : en Pages :
Book Description
The entitlement to social security retirement benefits is a major component of aggregate household wealth. This paper focuses on the impact of social security annuities on household portfolio allocation, extending existing optimizing models of portfolio allocation to explicitly consider the role of social security. The model is implemented using cross-section data. The partial equilibrium impacts of changes in social security benefits on portfolio choice and composition are small but precisely measured. The general equilibrium impacts on asset markets of a social security policy change (focusing onlinks between social security and dynamic wealth accumulation and between social security benefits and private pension benefits) are generally much larger
Author: Massimo Massa Publisher: ISBN: Category : Languages : en Pages : 36
Book Description
We study the impact of menu representation on portfolio choice and we show that investors choose assets as a function of the way they are represented in the menu available to them. We use the choices of mutual funds for retirement accounts of the Swedish population. We show that investors prefer the funds that belong to categories that are more represented in the menu. More numerous categories attract more investment than what portfolio theory would suggest. Moreover, an exogenous change in the menu changes investor demand. An increase in the representation of a category in the menu increases investment in the funds belonging to the same category, including the already existing ones. By using information on the performance of the funds that investors choose and the degree of concentration of the investor portfolio, we show that there is a consistent positive correlation between the investor's sensitivity to menu exposure and his degree of informativeness. This suggests that menu exposure represents a rational way of coping with limited (private) information that decreases as information improves. Our findings shed light on the home bias puzzle and insight on the determinants of style investing. They also have direct normative implications in terms of Social Security reform.
Author: Pablo Castaneda
Author: Pablo Castaneda
Author: Jialun Li
Author: Adeline Delavande
Author: Tae-Young Pak
Author: Pu Li
Author: Helen Saar
Author: Arthur van Soest
Author: R. Glenn Hubbard
Author: Massimo Massa
Author: Egil Matsen