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60
Public Pension Promises: How Big Are They and What Are They Worth?”
 Journal of Finance, forthcoming.
, 2011
"... Abstract We calculate two present value measures of alreadypromised state pension liabilities using discount rates that reflect their risk. If benefits have the same priority in default as general obligation debt, aggregate underfunding is $1.21 trillion. If states cannot default on these benefits ..."
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Cited by 46 (3 self)
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Abstract We calculate two present value measures of alreadypromised state pension liabilities using discount rates that reflect their risk. If benefits have the same priority in default as general obligation debt, aggregate underfunding is $1.21 trillion. If states cannot default on these benefits, underfunding is $3.12 trillion. The first measure is a lower bound on the value of the liability to taxpayers, and is more than the $0.94 trillion in state municipal debt. The second measure is a better benchmark for funding adequacy. We also estimate broader concepts of accrued liabilities that account for projected salary growth and future service.
Estimating the level and distribution of global household wealth
, 2007
"... We thank participants at the May 2006 UNUWIDER project meeting on Personal Assets from a Global ..."
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Cited by 24 (2 self)
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We thank participants at the May 2006 UNUWIDER project meeting on Personal Assets from a Global
Lifetime consumption and investment: retirement and constrained borrowing
 Journal of Economic Theory
, 2010
"... Abstract Retirement exibility and inability to borrow against future labor income can signi cantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealthtowage ratio threshold for retirement and human capital correlates negatively with the stock market ..."
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Cited by 21 (4 self)
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Abstract Retirement exibility and inability to borrow against future labor income can signi cantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealthtowage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure. Consequently, investors optimally invest more in the stock market than without retirement exibility. Both consumption and portfolio choice jump at the endogenous retirement date. The inability to borrow limits hedging and reduces the value of labor income, the wealthtowage ratio threshold for retirement, and the stock investment. Journal of Economic Literature Classi cation Numbers: D91, D92, G11, G12, C61.
Optimal Portfolio Choice over the Life Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts, Review of Finance 15.4
, 2011
"... Abstract. This paper derives optimal lifecycle asset allocations for consumers who select work hours and retirement ages given uncertain labor income and investment returns. These shocks shape retirement and asset allocation patterns in complex ways: negative labor market shocks and high stock retu ..."
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Cited by 19 (15 self)
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Abstract. This paper derives optimal lifecycle asset allocations for consumers who select work hours and retirement ages given uncertain labor income and investment returns. These shocks shape retirement and asset allocation patterns in complex ways: negative labor market shocks and high stock returns influence the young to work less and buy more annuities, and later, to retire early. This flexibility enhances welfare; our model also fits several important empirical stylized facts including the two peaks in retirement rates, the humpshaped pattern of work hours, the sizeable discontinuity in consumption at retirement, and low annuity takeups of older households.
IQ and Stock Market Participation �
, 2009
"... An individual’s IQ stanine, measured early in adult life, is monotonically related to his stock market participation decision later in life. The high correlation between IQ and participation, which exists even among the 10 % most affluent individuals, controls for wealth, income, and other demograph ..."
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Cited by 16 (1 self)
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An individual’s IQ stanine, measured early in adult life, is monotonically related to his stock market participation decision later in life. The high correlation between IQ and participation, which exists even among the 10 % most affluent individuals, controls for wealth, income, and other demographic and occupational information. Supplemental data from siblings are used with both an instrumental variables approach and paired difference regressions to show that our results apply to both females and males, and that omitted familial and nonfamilial variables cannot account for our findings. IQ also is related to diversification. High IQ investors are more likely to hold mutual funds and larger numbers of stocks, other things equal.
Are Stocks Really Less Volatile in the Long Run?
, 2008
"... Stocks are more volatile over long horizons than over short horizons from an investor’s perspective. This perspective recognizes that observable predictors imperfectly deliver the conditional expected return and that parameters are uncertain, even with two centuries of data. Stocks are often conside ..."
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Cited by 11 (0 self)
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Stocks are more volatile over long horizons than over short horizons from an investor’s perspective. This perspective recognizes that observable predictors imperfectly deliver the conditional expected return and that parameters are uncertain, even with two centuries of data. Stocks are often considered less volatile over long horizons due to mean reversion induced by predictability. However, mean reversion’s negative contribution to longhorizon variance is more than offset by the combined effects of various uncertainties faced by the investor. Using a predictive system to capture these uncertainties, we find 30year variance is 21 to 53 percent higher per year than 1year variance.
Free for a fee: The hidden cost of index fund investing, Working paper
, 2009
"... I build a rational expectations model consistent with the empirical finding that active funds underperform index funds by as much as their fees. Uninformed households receive privately observed wealth shocks that lead them to rebalance, thereby inducing noise in stock prices. As a result, they fail ..."
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Cited by 8 (0 self)
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I build a rational expectations model consistent with the empirical finding that active funds underperform index funds by as much as their fees. Uninformed households receive privately observed wealth shocks that lead them to rebalance, thereby inducing noise in stock prices. As a result, they fail to attain the buyandhold index fund return. The equilibrium net buyandhold alpha of informed active funds is negative to make active and index funds equally attractive. I find in the data that high index fund flows forecast low returns and low index fund returns relative to active fund returns. This differential impact can account for most of the buyandhold advantage of index funds over active funds.
A MeanVariance Benchmark for Intertemporal Portfolio Theory
, 2008
"... By reinterpreting the symbols, oneperiod meanvariance portfolio theory can apply to dynamic intertemporal problems in incomplete markets, with nonmarketed income. Investors first hedge nontraded income and preference shocks. Then, their optimal payoffs are split between an indexed perpetuity and ..."
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Cited by 8 (3 self)
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By reinterpreting the symbols, oneperiod meanvariance portfolio theory can apply to dynamic intertemporal problems in incomplete markets, with nonmarketed income. Investors first hedge nontraded income and preference shocks. Then, their optimal payoffs are split between an indexed perpetuity and a “longrun meanvariance efficient” payoff, which avoids variation over time as well as variation across states of nature. In equilibrium, the market payoff and the average outsideincome hedge payoff span the longrun meanvariance frontier, and longrun expected returns are linear functions of longrun market and outsideincomehedge betas. State variables for investment opportunities and outside income are conveniently absent in these characterizations.
Optimal asset allocation in a stochastic factor model  an overview and open problems
 Advanced Financial Modelling, Radon Series in Computational and Applied Mathematics, 8:427 – 453
, 2009
"... This paper provides an overview of the optimal investment problem in a market in which the dynamics of the risky security are a¤ected by a correlated stochastic factor. The performance of investment strategies is measured using two criteria. The
rst criterion is the traditional one, formulated in t ..."
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Cited by 6 (1 self)
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This paper provides an overview of the optimal investment problem in a market in which the dynamics of the risky security are a¤ected by a correlated stochastic factor. The performance of investment strategies is measured using two criteria. The
rst criterion is the traditional one, formulated in terms of expected utility from terminal wealth while the second is based on the recently developed forward investment performance approach. 1
Why Do Household Portfolio Shares Rise in Wealth?
, 2007
"... In the crosssection of U.S. households, the portfolio share in risky assets rises in wealth. The standard lifecycle model with homothetic utility and nontradable labor income has the counterfactual implication that the portfolio share in risky assets declines in wealth. We develop a lifecycle mo ..."
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Cited by 5 (0 self)
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In the crosssection of U.S. households, the portfolio share in risky assets rises in wealth. The standard lifecycle model with homothetic utility and nontradable labor income has the counterfactual implication that the portfolio share in risky assets declines in wealth. We develop a lifecycle model in which household utility is a nonhomothetic function of two types of consumption goods, basic and luxury. The nonhomothetic model predicts that the expenditure share for basic goods declines in total consumption and the variance of consumption growth rises in the level of consumption. When calibrated to match household facts on the basic expenditure share, this model explains both consumption volatility and portfolio shares that rise in wealth.