Wealth Ratio Research Articles

Optimal Spending Strategies for Sovereign Wealth Funds Using a Discrete-Time Life Cycle Model

The paper analyses optimal spending of an endowment fund. The purpose is to find a spending rule which is optimal for the owners and which secures that the fund will last “forever”. This we do by finding closed form solutions of the optimal consumption to wealth ratio. We solve this problem using the life cycle model, where the agent can have preferences represented by expected utility or recursive utility. We apply our results to a sovereign wealth fund, and demonstrate that the optimal spending rate is significantly lower than the fund’s expected real rate of return, a rule which is in common use. Employing the latter as the spending rate, implies that the fund’s value deteriorates both in probability and in expectation, as time goes. For both kinds of long term convergence we find closed form threshold values. Spending below these values secures a sustainable fund.

Benchmark-driven investment for DC pension plans

Abstract We investigate whether a benchmark and non-constant risk aversion affect the probability density distribution of optimal wealth at retirement. We maximize the expected utility of the ratio of pension wealth at retirement to an inflation-indexed benchmark. Together with a threshold and a lower bound, we are able to generate closed-form solutions. We find that this non-constant risk aversion type of utility could shift the probability density distribution of optimal wealth more towards the benchmark, and that the probability of achieving a certain percentage of the desired benchmark could be increased. The probability density distribution generated under constant relative risk aversion (CRRA) risk preference is more widely spread along the benchmark.

Analysis of Financial Performance, Efficiency, and Organizational Growth of Zakat Management Organizations on Zakat Collection in Indonesia

The purpose of this study is to analyze the financial performance, efficiency and growth of zakat management organizations with independent variables such as liquidity ratios, amil funds, activity, efficiency and growth in zakat payments. The dependent variable used is the zakat institution which can be seen on the website of each zakat institution. The population of this study is all zakat institutions registered at BAZNAS for the 2016-2020 period. Sampling using purposive sampling method. The number of samples used in this study were 8 zakat institutions with a research period of 5 years. The analytical method used was panel data regression processed with Eviews version 10. This research was conducted in several ways to determine the appropriate model, namely: Interaction Test, Fixed Effect Test, Random Effect Test, Chow Test, Housman's test. The appropriate model is obtained after classical assumptions and hypothesis testing. The results showed that the ratio of liquidity, amil wealth and activity did not affect the distribution of zakat. While the efficiency ratio and growth ratio on the control variable have a positive effect on the distribution of zakat.

The link between MiFID and Risk Appetite Framework as an application of best practices for wealth management and the entire value chain of the financial industry

After a short review of the MiFID regulations and the RAF, the paper identifies the link between them which allows to mitigate a balance sheet risk sustained by the financial intermediary and, at the same time, to improve its stability and value creation, through a maximization of customer loyalty. The client’s attitude towards risk can be summarized in these terms: "I don't like risk, but I like to win". Thus, a three-dimensional approach towards expected utility is suggested for estimating risk tolerance: risk aversion, loss aversion and reflection. In addition, a definition of the client's financial objectives is required, combined with greater disclosure - which allows the construction of a financial statement – to attest that risk-taking is indeed a luxury, as indicated by the metrics of the discretionary wealth ratio, and therefore, of the Standard of Living Risk (SLR). The next step consists in the determination of a set of portfolios along the efficient frontier where risk is represented by the expected shortfall, the determination of which belongs to a Generalized Extreme Value Theory logic. The client's objectives are described in terms of probability of success, where the latter is a function of an initial endowment, a potential positive contribution of financial resources over time as well as an expected return level. The above is expressed through a practical case that envisages the determination of a set of EGPF portfolios and the identification of the specific portfolio, obtained as a solution to a static and dynamic optimization problem, where the objectives have been formalized through the calculation of the associated utility

Mortality differentials, the racial and ethnic retirement wealth gap, and the COVID-19 Pandemic

Using the Survey of Consumer Finances, I find that the Black/white gap in standard net worth widened from 1989 to 2019 but narrowed between Hispanics and (non-Hispanic) whites. When the definition of wealth is expanded to incorporate Social Security and defined benefit pension wealth (both the discounted sum of future benefits) to create augmented wealth, the wealth gap is sharply reduced, especially for median wealth. The Black/white and Hispanic/white disparity in Social Security wealth lessened considerably over 1989–2019. In contrast, the Black/white ratio of mean augmented wealth showed no change, though the ratio of median augmented wealth progressed. The Hispanic/white ratio of both mean and median augmented wealth advanced as well. The COVID-19 Pandemic struck in 2020 and hit the minority community much harder than whites in terms of mortality rates. Besides claiming over a million lives overall, it lopped off 4.7 percent of Social Security wealth among whites, 11.5 percent among Blacks, and 13.1 percent among Hispanics. As a result, while mean augmented wealth dipped only 1.2 percent among whites, it fell 6.7 percent among Black households and 7.3 percent among Hispanics. The effect was even stronger on median values – declines of a 2.6, 9.3 and 12.1 percent, respectively.

Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860–2020

Abstract The racial wealth gap is the largest of the economic disparities between Black and white Americans, with a white-to-Black per capita wealth ratio of 6 to 1. It is also among the most persistent. In this article, we construct the first continuous series on white-to-Black per capita wealth ratios from 1860 to 2020, drawing on historical census data, early state tax records, and historical waves of the Survey of Consumer Finances, among other sources. Incorporating these data into a parsimonious model of wealth accumulation for each racial group, we document the role played by initial conditions, income growth, savings behavior, and capital returns in the evolution of the gap. Given vastly different starting conditions under slavery, racial wealth convergence would remain a distant scenario, even if wealth-accumulating conditions had been equal across the two groups since Emancipation. Relative to this equal-conditions benchmark, we find that observed convergence has followed an even slower path over the past 150 years, with convergence stalling after 1950. Since the 1980s, the wealth gap has widened again as capital gains have predominantly benefited white households, and convergence via income growth and savings has come to a halt.

A comparative analysis of the financial performance of commercial banks after mergers and acquisitions using Nepalese data

This article investigates consolidation and restructuring in the banking sector in Nepal that was induced by regulatory intervention in recent years. We compare the financial performance of the overall commercial banking sector and selected commercial banks on an individual basis before and after the mergers and acquisitions (M&A) policy intervention. The research employs an analysis of the financial ratios (profitability, liquidity, leverage, and wealth of shareholders ratios) before and after mergers that took place between 2013 and 2020 on a sample of seven Nepalese commercial banks. Hypotheses are tested using a paired sample t-test to measure any significant difference between the pre- and post-merger situations of the acquiring banks’ financial metrics. The findings indicate that the overall commercial banking sector significantly improved their liquidity and leverage ratios in the post-merger period. Other measures, such as the profitability and shareholder wealth ratios showed either mixed or insignificant results after the M&A. The results for selected commercial banks on an individual basis were even less conclusive and mixed. While some banks showed improvement in financial ratios, other results were insignificant.

Optimal Portfolio Investment and Consumption Strategies in Indian Equity Market

A number of investment strategies map out to maximize portfolio growth are tested on a long run Indian equity market. The application of the optimal portfolio techniques produces magnificent rate of growth, In spite of the fact that the assumptions of normality. Optimal portfolios are constructed by rebalancing the portfolio weights of four indices and ten sectors of National stock exchange indices. The purpose of this paper is to examine the Optimality of the Portfolio in the NSE and examine hypothesis the application of efficient market. The sample of stocks is not large in spite of its comprehensiveness from the local stock market . This paper also analyzes optimal portfolio and consumption strategies with unobservable states and predictability of risky asset returns. We develop approximate analytical solutions to the unconstrained dynamic problem. The approximation is shown to be fast and accurate. The computation time of the approximate solution is shown to be practically independent of the number of assets when no predictors are present and only marginally affected by the number of predictors. While the portfolio policy strongly depends on the current state of the economy, the consumption-to-wealth ratio is violently state-independent. Hedging demands are negligible with regimes and no predictability, but are important with predictability. On the other hand, the consumption to wealth ratio is not very impacted by the predictor. We provide an out of sample statistical assessment of the returns provided by a multi-regime strategy with respect to a single-regime and to a 1/N strategy.

Wealth-Income Ratios in Free Market Capitalism: Switzerland, 1900-2020

Abstract We show that over the 20th century, in Switzerland the ratio of private wealth to national income, βpt, did not follow a U-shaped pattern, thereby contrasting the evolution in most European countries. Instead, the ratio was exceptionally stable at around 500%. We argue that this consistently high βpt was the result of geopolitical factors combined with Switzerland's capital friendly policy-making. Since the turn of the century, however, βpt has been on a rapid rise to reach 793% in 2020. This exceptionally fast increase is mainly driven by large capital gains, especially in housing wealth.

Dysfunctional design of campaign finance regulatory and post-election corruption

This study begins with the condition that almost every election held in Indonesia lacks accountability and transparency in campaign finance report cases. Matched to Mietzner’s (2015) and Briffault’s (2010) reports, there are always problems with the non-functioning of campaign finance arrangements in upholding the principles of transparency and accountability. As a result, the lack of accountability and transparency in implementing campaign finance arrangements often results in conflicts of interest that lead to post-election corruption. This article aims to discover the factors that hinder the functioning of campaign finance regulations that can encourage enforcement transparency and accountability. This research uses normative juridical methods with a comparative law approach. The object of this research is the election campaign funding regulation, especially local elections in Indonesia and focuses on the dysfunctional design of campaign finance regulations on local head elections. We found that the candidates often violate existing campaign finance regulations, with election administrators, law enforcement and the public openly tolerating such violations. Campaign finance regulations continue to develop, but they only prioritize administrative aspects in their implementation. In conclusion, changes needed to optimize fund management are funds obtained from campaigns owned by individuals and then have a reasonable candidate wealth ratio.

Health shocks and housing downsizing: How persistent is ‘ageing in place’?

Individual preferences for ‘ageing in place’ (AIP) in old age are not well understood. One way to test the strength of AIP preference is to investigate the effect of health shocks on residential mobility to smaller size or value dwellings, which we refer to as 'housing downsizing'. This paper exploits more than a decade worth of longitudinal data to study older people's housing decisions across a wide range of European countries. We estimate the effect of health shocks on different proxies for physical and financial housing downsizing (residential mobility, differences in home value, home value to wealth ratio), to examine the persistence of AIP preferences. Our findings suggest that consistently with the AIP hypothesis, after every decade of life, the likelihood of downsizing decreases by two percentage points (pp). However, the experience of a health shock partially reverts such culturally embedded preference for AIP by a non-negligible magnitude. We estimate a 9pp increase in the probability of residential mobility after the onset of a degenerative illness), and an average 0.6 fewer rooms after the onset of a degenerative illness. Such estimates are larger in Northern and Central European countries.

Optimal management of DC pension fund under the relative performance ratio and VaR constraint

This paper investigates the optimal management of defined contribution pension plan under the Omega ratio and Value-at-Risk (VaR) constraint. Interest and inflation risks are considered, and the financial market consists of cash, a zero-coupon bond, an inflation-indexed zero-coupon bond, and a stock. The goal of the pension manager is to maximize the performance ratio of the real terminal wealth under the VaR constraint. An auxiliary process is introduced to transform the original problem into a self-financing problem. We obtain the optimal terminal wealth under different cases by combining the linearization method, the Lagrange dual method, the martingale method, and the concavification method. There are fourteen cases for the convex penalty function, and there are six cases for the concave penalty function. Besides, when the penalty and reward functions are both power functions, the explicit forms of the optimal investment strategies are obtained. Numerical examples are shown to illustrate the impacts of the performance ratio and VaR constraint.

Aggregate consumption and wealth in the long run: The impact of financial liberalization

SummaryThis paper investigates the impact of financial liberalization on the relationship between consumption and total wealth (i.e., the sum of asset wealth and human wealth). Financial liberalization is persistent and may signal changes in expected future consumption growth rates and/or in rates of return on wealth that, through the intertemporal budget constraint, affect the current consumption–wealth ratio. We estimate the long‐run relationship between consumption, total wealth, and financial liberalization by state space methods using quarterly US data. The results show that the trend in the consumption–wealth ratio is well‐captured by our baseline liberalization indicator. We find that the increase in this indicator over the sample period has increased the consumption–wealth ratio with about 10%. Investigating the responsible channel, additional estimates show that financial liberalization has predictive power for aggregate consumption growth rather than for returns, a result that supports an incomplete markets interpretation of the link between liberalization and the consumption–wealth ratio.

Evaluating the Conditional CAPM using Consumption-based State Variables: Evidence from the Korean Stock Market

In this study, we evaluate the empirical performance of conditional asset pricing models using consumption-based measures as state variables. We incorporate three consumption variables known to forecast the equity risk premium as conditioning variables to capture time variations in the risk premium. These three variables are the consumption-aggregate wealth ratio, the surplus consumption ratio, and the labor income to consumption ratio. The asset pricing models evaluated in this study are the CAPM, the CAPM with human capital, the consumption CAPM, and the Fama-French three-factor model. We compare the unconditional and conditional specifications of these four asset pricing models using the two-pass cross-sectional regression methodology, using the size, book-to-market, turnover, and idiosyncratic risk sorted portfolios and sector portfolios as test assets. We demonstrate that the conditional CAPM with human capital performs far better than the unconditional specifications and about as well as the Fama and French three-factor model in explaining the crosssection of average stock returns in Korea.

Optimal Claiming of Social Security Benefits

Using a lifecycle framework with Epstein-Zin (1989) utility and a mixed-integer optimization approach, we compute the optimal age to claim Social Security benefits. Taking advantage of homogeneity, a sufficient statistic is the ratio of wealth to the primary insurance amount (PIA). If the investor's wealth to PIA ratio exceeds a certain threshold, individuals should defer Social Security for at least a year. The optimal threshold depends on mortality assumptions and an individual’s utility preferences, but is less sensitive to capital market assumptions. The threshold wealth to PIA ratio increases from 5.5 for men and 5.2 for women at age 62 to 11.1 for men and 10.4 for women at age 69. Below the threshold wealth to PIA ratio, individuals claim Social Security to raise consumption. Above this level, investors can afford to fund consumption out of wealth for at least one year, and then claim a higher benefit.

Pengembangan Model dan Metode Perhitungan Bonus Demografi

Previously research on bonus demographic measurement is still only focused on one model, namely dependency ratio which coverage two methods namely Cheung et al and Adioetomo. This research was carried out in East Lombok Regency and consist of two models, namely dependency ratio model and economic lifetime model. Dependency ratio model which coverage four methods namely Cheung et al, Adioetomo, Komine & Kabe, and Golini. Meanwhile economic lifetime model which coverage two methods namely support ratio and ratio of lifecycle pension wealth to total labour income. The aimed of this research is to determine model and method of bonus demographic measurement. This research used descriptive quantitative method. Based on the data analysis the results obtained that model that developed for measurement of demographic bonus is only dependency ratio model, meanwihle economic lifetime model isn’t developed yet. Refer to the fourth method of dependency ratio model, three methods have been developed namely Cheung et al, Adioetomo, Komine and Kabe, meanwhile Golini hasn’t been developed yet. Based on Cheung et al method East Lombok Timur Regency has been achieved demographic bonus between 2035 and 2045, but based on Adioetomo method between 2020 and 2045 has not been achieved demographic bonus yet and based on Komine and Kabe method will be achieved demographic bonus between 2020 and 2045. Keywords: demographic bonus, dependency ratio, economic lifetime

Teacher and Student Reciprocal Agency in Odds-Beating Schools

Background/Context In the field of education, the lens of agency has provided a valuable conceptual alternative to deterministic portrayals of schools as oppressive institutions where teachers and students have little power over the conditions in which they teach and learn. A number of studies have investigated teacher and student agency, but few have explored the relationships between the two, particularly in regard to how teacher and student agency relate in high-need and high-diversity contexts with exemplary student graduation outcomes. Purpose/Focus of the Study In an effort to address the paucity of research investigating the relationships of teacher and student agency, this analysis draws on seven qualitative case studies of secondary schools achieving a trend of above-predicted (i.e., odds-beating) graduation outcomes. We pursued the overarching research question: What are the relationships between teacher and student agency in odds-beating schools? Setting The study took place in a purposeful sample of odds-beating secondary schools identified through multiple regression analyses. The sample included schools in rural, suburban, and more urban communities and were distributed across various geographic regions in the state of New York. All schools shared a pattern of above-predicted graduation outcomes, taking into account student demographic factors (percentage of students economically disadvantaged, African American/Black, Hispanic/Latinx, and English language learners). All schools met the criteria of being within the normal range for wealth ratio as well. Research Design This qualitative multiple case study focused on data generated from interviews and focus groups with 302 participants, including teachers, student support specialists, and school and district leaders, as well as field notes gathered during guided school tours, and documents. These data were analyzed using qualitative comparative analysis methods in multiple phases of deductive and inductive coding. Conclusions Study findings indicate that when teachers are offered opportunities to act as agents, they tend to offer opportunities to their students similarly. This research also suggests that affordances for teachers to assert agency can mitigate the constraining effects of state accountability system compliance-oriented practices. We conclude that teacher and student reciprocal agency merits further study and offers theoretical insights of particular import in high-needs and high-diversity school contexts.

Linking U.S. State-level housing market returns, and the consumption-(Dis)Aggregate wealth ratio

Using state-level data for the U.S. housing market over the period of 1975:Q1-2012:Q2, we show that the consumption-wealth ratios derived from aggregate wealth (cay) and disaggregate (i.e. financial and housing) wealth (cday) are strong predictors of real housing returns (and their volatility). Additionally, we find that, barring the extreme ends of their respective conditional distributions, such effect is stronger for housing return volatility than housing returns. All in all, our findings show that state-level regressions can recover a large degree of heterogeneity that country-level exercises typically ignore. Such heterogeneity is prominent not only in terms of consumption smoothing behavior, but also with regard to housing return predictability.

Regularizing Bayesian predictive regressions

Regularizing Bayesian predictive regressions provides a framework for prior sensitivity analysis via the regularization path. We jointly regularize both expectations and covariance matrices using a pair of shrinkage priors. Our methodology applies directly to vector autoregressions and seemingly unrelated regressions (SUR). By exploiting a duality between penalties and priors, we reinterpret two classic macrofinance studies: equity premium predictability and macroforecastability of bond risk premia. We find those plausible prior specifications for predictability for excess S&P 500 returns exist, using predictors as book-to-market ratios, consumption–wealth ratio, and T-bill rates. We evaluate our forecasts using a market-timing strategy and show how ours outperforms buy-and-hold. We also predict multiple bond excess returns involving a high-dimensional set of macroeconomic fundamentals with a regularized SUR model. We find the predictions from latent factor models such as PCA are sensitive to prior specifications. Finally, we conclude with directions for future research.

Strengthening Macroeconomics Through Of Zakah As Social Business Finance

This study examines the Potential Role of Zakat as Sharia Bank Social Business Finance for the survival of sharia banking, National economic growth, income distribution for the poor, and the ratio of the population's natural wealth. This study uses a small sample test to observe the correlation and contribution of the role of zakat in each of the observational variables, in comparing before and after being linked to the role of zakat, the hypothesis testing of two means is used to obtain different results and the results obtained in this study are that there are significant differences in the survival of the sharia bank which is linked to zakat becomes more profitable. Likewise, the use of hypothesis testing in measuring the effect of income distribution, fair wealth ratio, and growth on the role of zakat as a source of Islamic financial business social financial funds together has a significant effect with various relationships between variables such as income distribution and the role of having opposite directions , so too is the relationship between the ratio of fair wealth to the role of zakat. However, a unidirectional relationship occurs with the profit of Islamic banks with the potential for zakat.