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Investment Risk (investment + risk)
Selected AbstractsINVESTMENT RISK AND THE TRANSITION INTO HOMEOWNERSHIP,JOURNAL OF REGIONAL SCIENCE, Issue 2 2007Tracy M. Turner R0; D12; D84 ABSTRACT This paper investigates the extent to which house,price uncertainty affects the transition of renter households into homeownership. Using a 14-year household panel from the Panel Study of Income Dynamics during the years 1984,1997 and measures of the time-varying risk and return to owner-occupied housing, we estimate a Cox proportional hazard model of the effect of house,price volatility on the transition into homeownership. Results indicate that house,price uncertainty has a negative and dramatic impact on transitions into homeownership. In addition, we find that the low-wealth renters are particularly sensitive to house,price risk. [source] Earnings characteristics and analysts' differential interpretation of earnings announcements: An empirical analysisACCOUNTING & FINANCE, Issue 2 2009Anwer S. Ahmed G14; M41 Abstract This study provides empirical evidence on factors that drive differential interpretation of earnings announcements. We document that Kandel and Pearson's forecast measures of differential interpretation are decreasing in proxies for earnings quality and pre-announcement information quality. This evidence yields new and useful insights regarding which earnings announcements are less likely to generate newfound disagreement among analysts and investors. Recent research suggests that investor disagreement can increase investment risk, increase the cost of capital, and cause stock prices to deviate from fundamental value. Therefore, our results support prior intuition that increasing the quality of earnings and pre-announcement information can improve the efficiency of capital markets. [source] Seeing is not enough: manipulating choice options causes focusing and preference change in multiattribute risky decision-makingJOURNAL OF BEHAVIORAL DECISION MAKING, Issue 5 2008Ivo Vlaev Abstract We show that preferences depend on the attributes that can be directly manipulated when people need to integrate multiple sources of information because direct manipulation causes focusing bias. This effect appears even when all relevant information is simultaneously and explicitly presented at the time the decisions are made. Participants decided how much to save, what investment risk to take and observed the future financial consequences in terms of the mean and variability of the expected retirement income. Participants who manipulated only the future income distribution saved more and took less risk. This effect disappears when the risk-related variables are removed, which indicates that task complexity is a mediator of such focusing effects. A more balanced trade-off between the choice attributes was selected when all attributes were manipulated. However, when there is a dichotomy between manipulating versus observing choice attributes, then decisions were based mostly on the manipulated attributes. Copyright © 2008 John Wiley & Sons, Ltd. [source] Guaranteeing Defined Contribution Pensions: The Option to Buy Back a Defined Benefit PromiseJOURNAL OF RISK AND INSURANCE, Issue 1 2003Marie-Eve Lachance After a long commitment to defined benefit (DB) pension plans for U.S. public sector employees, many state legislatures have introduced defined contribution (DC) plans for their public employees. In this process, investment risk that was previously borne by state DB plans has now devolved to employees covered by the new DC plans. In light of this trend, some states have introduced a guarantee mechanism to help protect DC plan participants. One such guarantee takes the form of an option permitting DC plan participants to buy back their DB benefit for a price. This article develops a theoretical framework to analyze the option design and illustrate how employee characteristics influence the option's cost. We illustrate the potential impact of a buy-back option in a pension reform enacted recently by the State of Florida for its public employees. If employees were to exercise the buy-back option optimally, the market value of this option could represent up to 100 percent of the DC contributions over their work life. [source] Portfolio theory and how parent birds manage investment riskOIKOS, Issue 10 2009Scott Forbes Investment theory is founded on the premise that higher returns are generally associated with greater risk, and that portfolio diversification reduces risk. Here I examine parental investment decisions in birds from this perspective, using data from a model system, a 16-year study of breeding red-winged blackbirds Agelaius phoeniceus. Like many altricial birds, blackbirds structure their brood into core (first-hatched) and marginal (later-hatched) elements that differ in risk profile. I measured risk in two ways: as the coefficient of variation in growth and survival of core and marginal offspring from a given brood structure; and using financial beta derived from the capital asset pricing model of modern portfolio theory. Financial beta correlates changes in asset value with changes in the value of a broader market, defined here as individual reproductive success vs. population reproductive success. Both measures of risk increased with larger core (but not marginal) brood size; and variation in growth and survival was significantly greater during ecologically adverse conditions. Core offspring showed low beta values relative to marginal progeny. The most common brood structures in the population exhibited the highest beta values for both core and marginal offspring: many parent blackbirds embraced rather than avoided risk. But they did so prudently with an investment strategy that resembled a financial instrument, the call option. A call option is a contingent claim on the future value of the asset, and is exercised only if asset value increases beyond a point fixed in advance. Otherwise the option lapses and the investor loses only the initial option price. Parents created high risk marginal progeny that were forfeited during ecological adversity (the option lapses) but raised otherwise (the option called); at the same time parents maintained a constant investment and return in low risk core progeny that varied little with changes in brood size or ecological conditions. [source] RISK PREMIUM EFFECTS ON IMPLIED VOLATILITY REGRESSIONSTHE JOURNAL OF FINANCIAL RESEARCH, Issue 2 2010Leonidas S. Rompolis Abstract This article provides new insights into the sources of bias of option implied volatility to forecast its physical counterpart. We argue that this bias can be attributed to volatility risk premium effects. The latter are found to depend on high-order cumulants of the risk-neutral density. These cumulants capture the risk-averse behavior of investors in the stock and option markets for bearing the investment risk that is reflected in the deviations of the implied risk-neutral distribution from the normal distribution. We show that the bias of implied volatility to forecast its corresponding physical measure can be eliminated when the implied volatility regressions are adjusted for risk premium effects. The latter are captured mainly by the third-order risk-neutral cumulant. We also show that a substantial reduction of higher order risk-neutral cumulants biases to predict their corresponding physical cumulants is supported when adjustments for risk premium effects are made. [source] Toward a New Corporate Reorganization ParadigmJOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2007Donald S. Bernstein Chapter 11 is becoming an increasingly flexible, market-driven forum for determining who will become the owners of financially troubled enterprises. With increasing frequency, distressed companies are sold in Chapter 11 as going concerns. At the same time, distressed investors, including hedge funds and private equity investors, are actively trading the debt of such companies in much the same way that equity investors trade the stock of solvent companies. Market forces drive the troubled company's debt obligations into the hands of those investors who value the enterprise most highly and who want to decide whether to reorganize or to sell it. One way or the other, the Chapter 11 process is used to effect an orderly transfer of control of the enterprise into new hands, whether the creditors themselves or a third party. But if the market-oriented elements of this new reorganization process promise to increase creditor recoveries and preserve the values of corporate assets, other recent developments could present obstacles to achieving these goals. In particular, the increased complexity of corporate capital structures and investment patterns,including the issuance of second-lien debt and the dispersion of investment risks among numerous parties through the use of derivatives and other instruments,threatens to increase inter-creditor conflicts and reduce transparency in the restructuring process. These factors, coupled with provisions added to the Bankruptcy Code that selectively permit "opt-out" behavior by favored constituencies, could interfere with the ability of troubled companies to reorganize as the next cycle of defaults unfolds. [source] Telematics: Decision Time for DetroitBUSINESS STRATEGY REVIEW, Issue 2 2001Anjan Chatterjee With implications for navigation, safety, entertainment and vehicle maintenance as well as regulation and infrastructure investment in roads, telematics has the potential to transform driving more than any other innovation for decades. In the already well-established Asian telematics industry, revenue tends to come from extra charges at the time of vehicle-sale, with most subsequent services provided free. The US model has evolved differently, with much of the cost of telematics hardware and software subsidized in the initial vehicle sale price and revenue coming from services used. The decision to invest in telematics is therefore riskier in the US. This article first briefly summarizes the potential of telematics. It then analyzes the investment risks, particularly for automakers. It concludes with recommendations on how the US auto industry can minimize risk and make the most of the opportunities. [source] | ||||||||||