What the 2008 stock market crash means for retirement security

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The authors find that those near retirement could fare the worst because they have no time to recoup their losses. Mid-career workers could fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.     

What the 2008 Stock Market Crash Means for Retirement Security

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The authors find that those near retirement could fare the worst because they have no time to recoup their losses. Mid-career workers could fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.     

A new paradigm: the wealth effect of the stock market on consumption,in a context of interacting bio-systems

This study examines the existence of a stock market wealth effect on aggregate private consumption in the economy. A theory of investor/consumer behavior is suggested, in a context of a symbiotic relationship between two quasi-bio-systems. The model offers predictions about likely outcomes in capital market interaction with the underlying economy in general and consumption in particular. These predictions are validated empirically. Specifically, the paper finds that investors/consumers do not respond immediately to a stock market rise (fall). Rather, they wait at first and thereafter gradually accelerate their ‘wealth spending’ on consumption only after they are convinced that the gain is permanent (a variation of the ‘income smoothing’ that was suggested many years ago by Friedman (1957)). The paper suggests that the capital markets and the economy interact like two bio-systems symbiotically responding to each other. This study presents evidence that the consumption wealth spending peaks at approximately 2.5% of the stock market wealth CUMULATIVE gain in the previous 12–24-month period, with some effects lingering on up to 36 months. For example, it shows that over 40% of the growth in consumer spending in 1999 was attributable to gains in the stock market in previous years, contributing to a strong GDP in that year.     

SAMUELSON'S DICTUM AND THE STOCK MARKET

Samuelson has offered the dictum that the stock market is "micro efficient" but "macro inefficient." That is, the efficient markets hypothesis works much better for individual stocks than it does for the aggregate stock market. In this article, we review a strand of evidence in recent literature that supports Samuelson's dictum and present one simple test, based on a regression and a simple scatter diagram, that vividly illustrates the truth in Samuelson's dictum for the U.S. stock market data since 1926.(JEL G14 )     

Assisted homeownership, investment and their roles in private property price dynamics in Hong Kong

Hong Kong not only has one of the most institutionally-involved housing markets, but also one of the most developed stock markets in the world. In the meantime, the function of real estate has become increasingly important, yet increasingly vague at the same time. This paper attempts to explore the significant factors in the price adjustments of residential properties. It is found that while most market fundamentals are not significant in explaining property price movements, the roles of investment concerns and of government policy changes in assisted homeownership (HOS) are much more critical in this regard. On the one hand, real estate prices are driven more by investor demand, rather than by user demand; and residential properties are used to hedge against price risks in the stock market, instead of against inflation. On the other hand, while the upgrading hypothesis is confirmed in this study, the situation of Hong Kong turns out to be a bit different from the Singapore experience. As the production of HOS flats is suspended until further notice, the resale HOS market has managed to pull a fraction of homebuyers from the private sector. This particular finding shows that the government’s decision to suspend HOS flat production and sale in Fall 2002 has not accomplished what was intended to achieve. Instead, this leads to several implications, which are then discussed.     

Privatization of Social Security in the United Kingdom warning or exemplar?

This study draws lessons for the debate about the proposed partial privatization of Social Security in the United States based on evidence from the United Kingdom. The British case suggests that privatization may lead to a reduction in the pension burden on the national budget if combined with substantial cuts in benefits. Such reforms may have positive effects on the economy, but any such benefits would come at a price that would include much higher administrative costs, exposure to stock market fluctuations, increased inequality, and potentially lower pension benefits for many low-wage workers, particularly women.     

Do Market Returns Influence Risk Tolerance? Evidence from Panel Data

This study used the 1992?C2006 waves of the Health and Retirement Study (HRS) to investigate changes in risk tolerance levels over time in response to stock market returns. Findings indicate that risk tolerance tends to increase when market returns increase and decrease when market returns decrease. Individuals who change their risk tolerance in this manner are likely to invest in stocks when prices are high and sell when prices are low. Researchers, employers, financial educators and practitioners should help investors overcome the bias of overweighting recent news of market performance.     

Gambling Revenues as a Public Administration Issue: Electronic Gaming Machines in Victoria

Gambling activities and the revenues derived have been seen as a way to increase economic development in deprived areas. There are also, however, concerns about the effects of gambling in general and electronic gaming machines (EGMs) in particular, on the resources available to the localities in which they are situated. This paper focuses on the factors that determine the extent and spending of community benefit-related EGM-generated resources within Victoria, Australia, focusing in particular on the relationships between EGM activity and socio-economic and social capital indicators, and how this relates to the community benefit resources generated by gaming.     

FORECASTING CRUDE OIL PRICE MOVEMENTS WITH OIL‐SENSITIVE STOCKS

This paper uses monthly data from 1984:M10 to 2012:M8 to show that oil‐sensitive stock price indices, particularly those in the energy sector, have strong power in predicting nominal and real crude oil prices at short horizons (1‐month‐ahead predictions), using both in‐ and out‐of‐sample tests. In particular, the forecasts based on oil‐sensitive stock price indices are able to outperform significantly the no‐change forecasts. For example, using the NYSE Arca (AMEX) oil index as a predictor, the 1‐month‐ahead forecasts for nominal crude oil prices reduce the mean squared prediction error by between 22% (for the West Texas Intermediate oil price) and 28% (for the Dubai oil price). Moreover, we find that the directional forecast based on the AMEX oil index is significantly better than a 50:50 coin toss. The novelty of this analysis is that it proposes a new and valuable predictor that both reflects timely market information and is readily available for forecasting the spot oil price.(JEL G17, Q43, Q47, C53)     

FIDDLING WITH VALUE: VIOLINS AS AN INVESTMENT?

This paper measures the returns to investing in violins, using two different datasets. One dataset includes 337 observations on repeat sales of the same violins at auction and at dealer sales starting in the mid‐nineteenth century, and another dataset includes over 2,500 observations on sales of individual violins at auction since 1980. Overall, real returns for the dataset on repeat sales for the period 1850–2008 have been approximately 3.5%. Real returns to the overall portfolio of individual sales since 1980 have been about 3.3%. The price path has been stable with a slight negative correlation to stocks and bonds. (JEL D44, G11, L82)     

The International Price Transmission in Stock Index Futures Markets

This study explores dynamic price relationships among nine major stock index futures markets, combining an error-correction model with directed acyclic graph (DAG) analysis. DAG-based innovation accounting results show that the Japanese market is isolated from other major stock index futures markets. The United States and the United Kingdom appear to share leadership roles in stock index futures markets. The UK and German markets rather than the U.S. exert significant influences on most European markets, which indicates a pattern of regional integration in Europe. Innovation accounting results based on widely used Choleski decomposition are found to be seriously misleading.     

Roles of Stock Price and Exchange Rate in Slovakia's Money Demand Function and Policy Implications

The demand for real M1 in Slovakia is positively influenced by real output and the stock price and negatively associated with the deposit rate, depreciation of the koruna, the euro interest rate, and the expected inflation rate. Considering the goods and the money market simultaneously, these results suggest that a higher stock price may or may not cause real output to rise and that a depreciation of the koruna or a higher euro interest rate would help raise Slovakia's real output. The coefficients of the deposit rate and the stock price in real M2 demand are insignificant at the 10% level. The likelihood ratio test in the extended Box–Cox model shows that the double-log form cannot be rejected at the 5% level while the linear form can be rejected at the 5% level. The CUSUM and CUSUMSQ tests show that the money demand function was relatively stable.      

On Finding the C in CBT: The Challenges of Applying Gambling-Related Cognitive Approaches to Video-Gaming

Many similarities have been drawn between the activities of gambling and video-gaming. Both are repetitive activities with intermittent reinforcement, decision-making opportunities, and elements of risk-taking. As a result, it might be tempting to believe that cognitive strategies that are used to treat problem gambling might also be applied to problematic video gaming. In this paper, we argue that many cognitive approaches to gambling that typically involve a focus on erroneous beliefs about probabilities and randomness are not readily applicable to video gaming. Instead, we encourage a focus on other clusters of cognitions that relate to: (a) the salience and over-valuing of gaming rewards, experiences, and identities, (b) maladaptive and inflexible rules about behaviour, (c) the use of video-gaming to maintain self-esteem, and (d) video-gaming for social status and recognition. This theoretical discussion is advanced as a starting point for the development of more refined cognitive treatment approaches for problematic video gaming.     

Leveraging corporate influence

Movement scholars have become increasingly interested in the way in which social movement actors target non-state entities, particularly corporations. The reason for this is quite simple: globalization, neoliberal policies adopted by the state, and new legal protections via court rulings have allowed businesses to exert considerable influence across all facets of society. In light of these changes, movements have found targeting the state less effective than directly pressuring business interests. Scholarship suggests that one of the most effective ways to ensure that corporations attend to movement concerns is through market pressures. While negatively impacting stock returns is perhaps the most effective means of achieving such pressure, there is surprisingly little empirical research linking stock price outcomes to movement success. Here, we use Qualitative Comparative Analysis and examine 35 labor strikes to determine if the ability of the union to negatively impact stock price affected their ability to win new gains for members (or, to prevent concessions). Our findings reveal that it is the characteristics of the targeted firm, not the actions of the unions themselves, that is most closely associated with success.     

Monetary Policy and the U.S. Stock Market

What is the influence of stock market valuations on monetary policy? We use a forward‐looking Taylor rule model to examine if monetary policy since the 19 October 1987 stock market crash has been influenced by the valuation of the stock market. We estimate the model using revised and real‐time data and find no empirical evidence that the Federal Reserve policy attempted to moderate stock market valuations during the late 1990s despite the “irrational exuberance” comments by Chairman Greenspan. Actually, the empirical evidence suggests that the Fed accommodated the high valuations of the stock market during this period.     

RETURNS TO INVESTORS IN STOCKS IN NEW INDUSTRIES

We examine investors' returns from publicly traded stock in new industries associated with major changes in transportation and communication in the United States. Return distributions during the development of own‐brand personal computers, airlines, airplane and automobile manufacturers, railroads, and telegraphs reveal three general characteristics. A few companies generate outstanding returns, many firms fail, and returns are volatile. Firms' expected returns are higher than market returns for three of the five industries. Sharpe ratios and Jensen's alphas for portfolios of each new industry indicate that portfolios of stocks in firms in new industries are not an obvious bad deal. (JEL G1, G12, N2, N21, N22)     

Les transformations du marché du travail : un éclairage à partir de l’analyse des décalages entre offre et demande dans un système productif localisé

This new look at approaches to the labor market emphasizes that changes observed during the past twenty years are related to trends as much in supply as in demand. Analyzing both these sides is shown to be valuable for understanding the impact on labor market trends and shedding light on the tensions and contradictions between supply and demand. The mechanisms that have come into play during this period are analyzed in a local productive system, namely agribusiness in the lower Rhone valley in the Provence-Alpes-Côte d’Azur Region of France.     

Interaktion des <Emphasis Type="Italic">als ob</Emphasis>: Privatanleger und Anlageberater

Since the late nineties, stock market investments have become an attractive option for many who want to secure or improve their standard of living, although ?stocks“ are an obscure subject for most of them. They have to rely on investment consultants in banks. Until the stock market crash, there was no reason to complain about the consulting process — shares kept going up in value.But it is remarkable that following the crash, which caused many investors to lose a large amount of money, the relationship between private investors and investment consultants does not seem to have been damaged.In our paper we first show the legal requirements for investment consulting and how these requirements are implemented by banks, and we identify considerable discrepancies between the theoretical and the actual fulfillment of these legal requirements.We then show that it is impossible to meet these requirements in reality because they rely on unrealistic assumptions regarding a consulting process that both adequately covers investment options and addresses the needs of investors. We argue that both sides are more or less satisfied with the situation because they operate on an as if basis: consultant and client talk and behave as if they understood each other.As if the consultant had really informed the client and as if the client had really understood the consultant. This as if which both parties are aware of but which is not openly discussed is the condition of a successful consultancy process and for making the business happen.     

401(k) plan asset allocation, account balances, and loan activity in 2009

CONSISTENT SAMPLE: Because 401(k) balances can fluctuate with market returns from year to year, meaningful analysis of 401(k) plans must examine how participants' accounts have performed over the long term. Looking at consistent participants in the EBRI/ICI 401(k) database over the six-year period from 2003 to 2009 (which included one of the worst bear markets for stocks since the Great Depression), the study found: After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 27.8 percent in 2008, before rising 31.9 percent in 2009. The average 401(k) account balance moved up and down with stock market performance, but over the entire six-year time period increased at an average annual growth rate of 10.5 percent, attaining $109,723 at year-end 2009. The median (or midpoint, half above and half below) 401(k) account balance increased at an average annual growth rate of 14.7 percent over the 2003-2009 period to $59,381 at year-end 2009. THE BULK OF 401(K) ASSETS CONTINUED TO BE INVESTED IN STOCKS: On average, at year-end 2009, 60 percent of 401(k) participants' assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. Thirty-six percent was in fixed-income securities such as stable-value investments and bond and money funds. MORE THAN THREE-QUARTERS OF 401(K) PLANS INCLUDED TARGET-DATE FUNDS IN THEIR INVESTMENT LINEUP AT YEAR-END 2009: At year-end 2009, nearly 10 percent of the assets in the EBRI/ICI 401(k) database was invested in target-date funds and 33 percent of 401(k) participants held target-date funds. Also known as lifecycle funds, they are designed to simplify investing and to automate account rebalancing. NEW EMPLOYEES CONTINUED TO USE BALANCED FUNDS, INCLUDING TARGET-DATE FUNDS: Across all but the oldest age group, more new or recent hires invested their 401(k) assets in balanced funds, including target-date funds. At year-end 2009, about 42 percent of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with 36 percent in 2008, and about 7 percent in 1998. At year-end 2009, 31 percent of the account balances of recently hired participants in their 20s was invested in lifecycle funds, compared with almost 23 percent at year-end 2008. 401(K) PARTICIPANTS CONTINUED TO SEEK DIVERSIFICATION OF THEIR INVESTMENTS: The share of 401(k) accounts invested in company stock continued to shrink, falling by half of a percentage point (to 9.2 percent) in 2009. That continued a steady decline that started in 1999. Recently hired 401(k) participants contributed to this trend: They tended to be less likely to hold employer stock. PARTICIPANTS' 401(K) LOAN ACTIVITY ROSE IN 2009: In 2009, 21 percent of all 401(k) participants eligible for loans had a loan outstanding against their 401(k) account, compared with 18 percent at year-end 2008 and year-end 2007. Loans outstanding amounted to 15 percent of the remaining account balance, on average, at year-end 2009, compared with 16 percent at year-end 2008. Loan amounts remained in line with the past few years in terms of typical dollar amounts.     

Nevada gaming: revenues and taxes (1945-95)

In 1931, Nevada legalized casino gambling, an act which allowed its gaming industry to develop. Because many jurisdictions outside Nevada are now embracing legalized gambling as a path to a brighter economic future and because this proliferation presents Nevada with new challenges and opportunities, it is a good time to review the Nevada experience. Here, the focus is on gaming revenues and gaming tax collections during the 1945–95 period. We find that the growth rate of Nevada's gaming industry has slowed over time, with the relative importance of gaming in the Nevada economy peaking in the late 1970's. The Nevada economy has since been gradually diversifying, something which will increasingly pressure Nevadans to look for government revenue sources other than gaming if current levels of government services are to be maintained.