Superior Investment Performance Research Articles

Investment Performance and Investor Behavior

The operation and characteristics of the American securities markets have long been major preoccupations of financial research, especially during the last decade. Particular attention has been devoted to the question of whether there exist investment strategies, or investing entities, capable of producing consistently superior investment performance. The general consensus to date is that few, if any, such success stories are observable. Examinations of the value of professional investment research and counsel ([7] [8] [9] [24]), of the payoff from technical trading rules ([11] [13] [18] [20] [26] [34]), and of the investment results of institutional money management ([15] [29] [25] [28]) have, in almost every instance, provided little indication of performance better than that attainable from a simple passive strategy of buying and holding a randomly selected, well-diversified portfolio of securities, after appropriate adjustments for portfolio risk levels are taken into account. The intensive competition in, and rapid information-digesting properties of, the capital market environment have been cited as explanations ([2] [5] [12]).

Annuity Rents and Rates. Guaranteed vs. Current

This paper analyzes variations in annuity rents, rates, and investment performance of 42 U.S. life insurers. Large variations existed in these factors, larger when comparisons were on a current rather than guaranteed basis. Variability was caused more by investment performance than mortality experience. Large insurers generally did not offer higher annuity rents than smaller ones. Stock insurers offered slightly higher rents than mutuals. Insurers appeared not to compensate for lower annuity rate guarantees by offering superior investment performance; rather, insurers offering higher annuity rates tended also to offer above average investment performance. The paper explores arbitrage opportunities available to consumers. Recent income tax legislation has created new interest in individual retirement savings plans by granting income tax deductions for these savings.' Rational purchase decisions, however, are made difficult by the complexity of annuities and by large differences in major components accounting for the annuity rent finally paid to the consumer at retirement. Previous research 2 has established, among other conclusions, that differences in overhead charges by life insurers tend to be large, producing relatively great variations in investment results over a period of years. The current Mark R. Greene is Distinguished Professor of Insurance in the College of Business Administration, the University of Georgia. He is past president of ARIA and the author of several books and numerous articles. John Neter is Professor of Management Sciences and Statistics in the College of Business Administration, the University of Georgia. He is a Fellow of the American Statistical Association and the author of numerous books and articles on the application of statistical methods. Lester I. Tenney is Professor of Insurance, College of Business, Arizona State University. He is Editor of The Journal of Insurance Issues and Practices, published by the Western Risk and Insurance Association. I The Employee Retirement Income Security Act of 1974 (ERISA) permits a selfemployed individual to save, free of current income tax, up to $7,500 a year or 15 percent of his or her income in these plans (Keogh Plans). These plans permit a selfemployed person earning and contributing annually only $750 or less to deduct the full amount contributed. ERISA also permits employees of firms with no qualified pension plans to save up to $1,500 a year, or 15 percent of income free of current income taxation, in individual retirement accounts (IRA's). An additional $250 is permitted to cover a nonworking spouse. 2 Mark R. Greene and J. Paul Copeland, Factors in Selecting Tax-Sheltered Annuities, CLU Journal, Vol. 19, No. 4 (October, 1975), pp. 34-46.