Investors' Asset Allocations versus Life-Cycle Funds

Schooley, Diane K.; Worden, Debra Drecnik

doi:10.2469/faj.v55.n5.2297

Cited by 55 publications

(31 citation statements)

References 6 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Moreover, existing literature provided that final level of risk assumed by any individual varies significantly with demographic features like gender (Slovic, 1996;Byrnes et al, 1999), age (Morin and Suarez, 1983;Bodie et al, 1992;Palsson, 1996;Heaton and Lucas, 2000), income (Blume, 1978;Cicchetti and Dubin, 1994;Bernheim et al, 2001) and marital status (Roszkowski, 1993;Lazzarone, 1996). Study by Haliassos and Bertaunt (1995) and Schooley and Worden (1999) on influence of education and knowledge on risk taking behavior have also explained that educated investors are less risk averse.…”

Section: Walia and Kiran 7297mentioning

confidence: 95%

Perceptual gap and anatomy of investment risk decisions

Walia¹,

Kiran²

2011

Afr. J. Bus. Manage.

View full text Add to dashboard Cite

Mutual funds put forward a way out to investors to approach maximum number of financial securities and get a well-diversified portfolio. Investors are lured by mutual fund investment because along with small savings they neither have sufficient expertise nor the means for diversification. The value added services offered by mutual funds during last decade has definitely lured the untapped investors. Although, investors have shown their presence in mutual funds market by investing in various innovative funds than traditional risk-free securities, it still has not become the most preferred choice of investors. Thus, it becomes imperative here to study the perception gap as well as risk ambiguity which investors feel with reference to their mutual funds' investment decisions. Empirical research results provided that investors experience a significant difference in actual services offered by mutual fund than they have perceived. Moreover, research results have also revealed that investors perceive mutual funds as a risky investment but simultaneously the analysis of preferred score provides that they do not wish to take extreme low or high risk. These findings for investors' decision to assume risk level have implications similar to Simonson and Tversky, Benartzi and Thaler.

show abstract

Section: Walia and Kiran 7297mentioning

confidence: 95%

Perceptual gap and anatomy of investment risk decisions

Walia¹,

Kiran²

2011

Afr. J. Bus. Manage.

View full text Add to dashboard Cite

show abstract

“…The traditional investment advice offered to individuals who are investing directly, or who are deciding the asset allocation for their own defined contribution scheme, is for the young to invest mostly in equities; and for the old to invest mostly in bondslifestyle investing. An empirical investigation of the financial holdings of 2,873 Americans by Schooley and Worden (1999) confirms that investors with a longer planning horizon invest a higher proportion of their financial assets in equities, while a study of 916 US academics by Bodie and Crane (1997) obtained a similar result 17 . Therefore, there appears to be a consonance between the long term investment policies for both individuals and pension funds.…”

mentioning

confidence: 88%

The cult of the equity for pension funds: should it get the boot?

Sutcliffe¹

2005

Journal of Pension Economics and Finance

View full text Add to dashboard Cite

Over the last half century UK defined benefit pension schemes have followed the cult of the equity by investing a large proportion of their assets in equities. However, since the turn of the millennium this cult has faced two serious challenges -the halving of equity prices, and the complete rejection of equity investment by the Boots pension scheme. This paper summarises the history of the cult in the UK and the arguments advanced at the time to support its adoption. It then presents the case for the cult (excluding taxation, risk sharing and default insurance). This is followed by a detailed consideration of the validity of this case, including an examination of the relevant empirical evidence. It is concluded that, in the absence of taxation, risk sharing and default insurance, the asset allocation is indeterminate; and depends on the risk-return preferences of the trustees and employer.Key words: pension funds, asset allocation, cult of the equity, time diversification, mean reversion, liability matching, equity risk premium. Throughout this paper, except where specified otherwise, equities is taken to mean a well diversified portfolio of shares, e.g. the market portfolio. 2Taxation is irrelevant for public sector pension schemes, while default insurance has not applied in the UK. Risk sharing may mean that the employees and the employer have different 1The allocation of a pension fund between equities and other asset classes is a key decision for trustees (Blake, Lehmann and Timmermann, 1999;Brinson, Hood and Beebower, 1986;Brinson, Singer and Beebower, 1991;and Ibbotson and Kaplan, 2000). The Boots Pension Scheme announced in July 2001 that they had liquidated the 75% of their assets invested in equities, and moved to a 100% bond portfolio, Ralfe (2001Ralfe ( , 2002, Ralfe, Speed and Palin (2003). This constitutes a clear rejection by Boots of the cult of the equity 1 ; which may be defined as investing a large proportion of the assets of a long term investor (e.g. a pension fund or a life assurance company) in equities. This paper shows how the cult has become established in the UK, and examines the arguments for its continuation.The total deficit of private sector UK defined benefit pension schemes was estimated in July 2003 by the Confederation of British Industry (2003) at £160 billion (although they note it might have been as high as £300 billion). The CBI also estimated that company profits would be depressed by about £16 billion per year over the next decade because of the need to increase employer pension contributions to fill this pensions deficit. A major cause of this deficit is the cult of the equity. Over the period January 2000 to March 2003, the FTSE All Share index fell to less than half its initial value. The UK cult of the equity meant that pension scheme losses from this stock market fall were much larger than would otherwise have been the case. These equity losses were an important factor in pension schemes reporting large deficits, closing to new members and increasing their co...

show abstract

“…Demographic factors such as age, education, income and wealth have also been confirmed to have an impact on investor's attitude (Schooley & Worden, 1999;Barber & Odean, 1999;Riley & Chow, 1992;). Schooley and Worden (1999) found that investors with higher education levels possess higher percentage of equity securities in their portfolios.…”

Section: Literature Reviewmentioning

confidence: 99%

Exploring Determinants to Explain Aspects of Individual Investors’ Financial Behaviour

Abdallah¹,

Hilu²

2015

AABFJ

View full text Add to dashboard Cite

This study uses exploratory factor analysis and structural modelling to determine individual determinants that are likely to influence financial trading behaviour. A questionnaire was collected form 179 individual investors who traded in the United Arab Emirates. The study has determined three likely independent variables; namely, investors' perception of information asymmetry, market perceptions and overconfidence, that may predict investor's risk attitude. The findings are congruent with existing literature in this field, and add knowledge to the relatively new field of financial behaviour. These findings may provide valuable guidance for researchers and practitioners in understanding what may influence the risk attitude of investors and to explain possible reasons for inefficiencies of markets. Additionally, the study demonstrates the relevance of using structural modelling for understanding relationships between factors influencing financial behaviours, and in developing a behavioural framework. Keywords AbstractThis study uses exploratory factor analysis and structural modelling to determine individual determinants that are likely to influence financial trading behaviour. A questionnaire was collected form 179 individual investors who traded in the United Arab Emirates. The study has determined three likely independent variables; namely, investors' perception of information asymmetry, market perceptions and overconfidence, that may predict investor's risk attitude. The findings are congruent with existing literature in this field, and add knowledge to the relatively new field of financial behaviour. These findings may provide valuable guidance for researchers and practitioners in understanding what may influence the risk attitude of investors and to explain possible reasons for inefficiencies of markets. Additionally, the study demonstrates the relevance of using structural modelling for understanding relationships between factors influencing financial behaviours, and in developing a behavioural framework. JEL Classification: N55, H39

show abstract

Investors' Asset Allocations versus Life-Cycle Funds

Cited by 55 publications

References 6 publications

Perceptual gap and anatomy of investment risk decisions

Perceptual gap and anatomy of investment risk decisions

The cult of the equity for pension funds: should it get the boot?

Exploring Determinants to Explain Aspects of Individual Investors’ Financial Behaviour

Contact Info

Product

Resources

About