Suchergebnisse

This paper discusses the factors that led up to the stock price bubble of the 1990s. Foremost among these, it is argued, was the conventional view that stocks are the investment of choice for the long‐run investor regardless of their price. This conventional view was based on a misunderstanding of academic theories developed over the past half century. Additional factors were the changing nature of US pensions which placed much more responsibility on the shoulders of the individual investor, and agency problems in investment management and the production of information about firm profitability. Finally there is some evidence that required rates of return were declining during this period. (J.E.L.: G10 and G23).

This paper is concerned with the relative volatility of international flows of debt and equity capital. It is shown that if foreign investors are less well informed about the domestic economy than domestic investors, then international flows of debt capital will be more volatile than flows of equity capital in the sense that the proportional change of foreign bondholdings in an economy in response to a change in that economy's economic prospects will be greater than the proportional change in foreign stockholdings. This is shown to be consistent with the behavior of international flows of debt and equity capital during the Asian crisis.

This article analyses and quantifies the costs of suboptimal decision making for an investor with a multi‐period horizon. In light of the empirical evidence that investors are too conservative and hold portfolios that are insufficiently diversified, we evaluate the costs of suboptimal equity participation both analytically and using simulation, and also estimate the costs of suboptimal diversification using simulation. We find that suboptimal leverage imposes only modest costs on the investor for reasonable parameter values. While the costs of inadequate diversification can be very high, we find that, because of the higher returns on small firms, an equally weighted portfolio of as few as five randomly chosen firms can provide the same level of expected utility as the value weighted market portfolio.(J.E.L.: G11, G18, G23).