Management Science (2013)1-3

王素娟

Summary Methodology :

Theoretical research:4Empirical Research:2Experiment Research:1

Topic: Corporate governance:1Risk management 2 Capital asset pricing and portfolio theory :3Behavioral finance:1

Innovation:

updating (model)of old problem; new method of old problem; old method of new problem; new method of new problem

Diversity and Performance

Feng Li, Venky Nagar

Management Science 59(3), pp. 529–544

Corporate governance

Motivation Diversity: open to new ideas and opportunities Performance: Finance and operating

This empirical investigation is valuable because strong

theoretical arguments exist both in support of diversity and

against it.

Methodology - Empirical Research DiversityAn organization’s stance on gay rights is likely to be a good proxy for its real attitudes toward diversity. Same-sexdomestic partnership benefit (SSDPB) policies

(Human Rights Campaign (HRC) http://www.hrc.org/)

Performance

future stock returns

The calendar portfolio approach

CRSP database

Conclusion and Contribution

The results show that holding these firms upon their SSDPB initiation in a calendar portfolio earns a four-factor annualized excess return (alpha) of approximately 10%over the 1995–2008 sample period, beating 95% of all professional mutual funds in the United States.

The insight for management: SSDPB adopters also show significant improvement in operating performance relative to nonadopters.

Contribution : A measure of diversity Empirical Research

Worst-Case Value at Risk of Nonlinear Portfolios

Steve Zymler, Daniel Kuhn, Berç Rustem

Management Science 59(1), pp. 172–188

Risk management

Motivation and Contribution

VAR

WVAR

WPVaR WQVaR

portfolios containing long positions in European options expiringat the end of the investment horizon,

portfolios containing long and/or short positions in European and/or exotic options expiring beyond the investment horizon

non-convex, fails to satisfy the subadditivity property of coherentrequires joint probability distribution of the asset returns

it tends to be overpessimistic and thus may result in undesirable portfolio allocations when portfolios containingderivatives

Contribution

The insight for management: Advances in portfolio optimization with

considerable downside risk allow for more tractable portfolio

optimization.

updating of old problem

The Role of Experience Sampling and Graphical Displays on One’s Investment Risk Appetite

Christine Kaufmann, Martin Weber, Emily Haisley Management Science 59(2), pp. 323–340

Risk management

Motivation

According to standard models of portfolio choice or lifetime

consumption, households should invest at least a small fraction of their

wealth into the stock market as soon as they start saving.(56% in the

United States, 36% in the Netherlands, 23% in Great Britain and

Northern Ireland, and 6% in Germany) Participation: financial professionals should provide clients

with tools that better explain risk-return profiles of investment

opportunities.

Methodology

risk-presentation modes One’s Investment Risk Appetite

(i) numerical descriptions, (ii) experience sampling,(iii) graphical displays, (iv) combination of these

formats in the “risk tool.”

(i) risk-taking behavior, (ii) investors’ recall ability of

the risk-return profile of financial products

Decisions from description are based on explicitly stated probabilitiesassociated with outcomes. Decisions from experience are based on sampling possible outcomes, meaning that the underlying probabilities must be judged or inferred based on the observed evidence.

Methodology: Experiment

Conciusion and contrubution

A risk presentation format that incorporates experience sampling and distributions of returns may help investors by increasing decision commitment, confidence, and recall ability as well as reducing known biases as the overestimation of the loss probability. These factors result in an increased willingness to accept risk in one’s portfolio.

The insight for management: Presenting fund performance graphically changes the perception of the desirability of the investment

Contribution: Comprehensive research of risk-presentation; Methodology: Experiment

Solving Constrained Consumption–InvestmentProblems by Simulation of Artificial Market Strategies

Björn Bick, Holger Kraft, Claus Munk

Management Science 59(2), pp. 485–503,

Capital asset pricing and portfolio theory

Motivation

Utility-maximizing consumption and investment strategies in

closed form are unknown for realistic settings involving portfolio

constraints, incomplete markets, and potentially a high number of state

variables.

Contribution

The authors propose a numerical procedure that Combines the

abstract idea of artificial, unconstrained complete markets, well-

known closed-form solutions in affine or quadratic return models,

straightforward Monte Carlo simulation, and a standard iterative

Optimization routine (SAMS).

The insight for management: New approaches to solving consumption investment problems to near optimality allow for more efficient solution times.

Contribution :New approaches of old problem

Market Crashes, Correlated Illiquidity, andPortfolio Choice

Hong Liu, Mark LoewensteinManagement Science 59(3), pp. 715–732

Capital asset pricing and portfolio theory

Motivation

The recent financial crisis highlights several potentially important fundamental elements for optimal portfolio choice. First, event risks

such as a market crash may be significant; second, market Liquidity may dry up after a crash; third, the probability of another crash may increase after a crash; and fourth, other investment opportunity set parameters (e.g., market volatility) may also change after a crash.

The optimal trading strategy in the presence Of market crashes that can trigger changes in the investment opportunity set has not been studied in the existing literature.

Contribution and conclusion

Contribution we develop a flexible portfolio choice model where market crashes can trigger switching into another regime with a different investment opportunity set. (updating of old problem) ConclusionsIn contrast to standard portfolio choice models, changes in the investment opportunity set in one regime can affect the optimal trading strategy in another regime even in the absence of transaction costs. The insight for management: Portfolio choice might change dramatically in the case of broad shifts in market prices.

Intertemporal CAPM with Conditioning Variables

Paulo MaioManagement Science 59(1), pp. 122–141

Capital asset pricing and portfolio theory

Motivation

ICAPM

Common to these papers is the assumption that the factor betas/risk prices in the expected return-beta representation are constant through time.

The beta/price of risk of aggregate cash-flownews is assumed to be time varying, the conditionalcash-flow beta is assumed to be linear in a statevariable, leading to a scaled ICAPM that containsthree factors: revisions in future aggregate cash flows (cash-flow news), revisions in future market discountrates (discount-rate news), and a scaled factor thatcorresponds to the interaction of cash-flow news andthe lagged state variable.

Conclusions and contribution

The author finds that the scaled ICAPM performs well in general,and prices particularly well the momentum portfolios. It compares favorably with alternative asset pricing Models in pricing both sets of equity portfolios. Furthermore, the scaled factor is decisive to account for the dispersion in average excess returns between past winner and past loser stocks. The insight for management: A time-varying cash-flow beta/price of risk provides a rational explanation for momentum.

Contribution: Model updating ,nearer to realization

Individual vs. Aggregate Preferences:The Case of a Small Fish in a Big Pond

Douglas W. Blackburn, Andrey D. Ukhov

Management Science 59(2), pp. 470–484

Behavioral finance

Motivation

The relation between risk preferences of individual agents in the economy and the attitude toward risk in the aggregate is fundamental in financial economics. The asset-pricing literature has grown in two important directions. The first line of literature focuses on the aggregate market. ( explain fundamental aggregate market characteristics such as expected returns and volatility). The second line of literature focuses on the behavior of Individuals It is only by aggregating individual demands that we can determine how individual behavior impacts aggregate prices. Yet this is a critical gap in the literature. This paper makes several important statements regarding the relationship between the aggregate economy and the individuals supporting the economy.

Conclusion and Contribution

we demonstrate that the difference between individual preferences

and aggregated preferences can be large.( risk seekers. can lead to an

aggregate economy that is risk averse. The converse is also true. (perfect

competition, the existence of budget constraints, and agent heterogeneity)

The insight for management: Understanding the relationship

between the preferences of individuals and the preferences of the

aggregate economy is crucial for understanding the connection between

the behavioral finance literature, which focuses on individual preferences,

and the asset-pricing literature, which focuses on aggregate prices.Contribution: new problem