Marginalizing Risk

A major focus of finance is reducing risk on investments, a goal commonly achieved by dispersing the risk among numerous investors. Sometimes, however, risk dispersion can cause investors to underestimate and under-protect against risk. Risk can even be so widely dispersed that rational investors individually lack the incentive to monitor it. This Article examines the market failures resulting from risk dispersion and analyzes when government regulation may be necessary or appropriate to limit these market failures. The Article also examines how such regulation should be designed,including the extent to which it should limit risk dispersion in the first instance

An asset-based approach to social risk management : a conceptual framework

There is increasing concern about the vulnerability of poor and near-poor rural households, who have limited capabilities to manage risk and often resort to strategies that can lead to a vicious cycle of poverty. Household-related risk is ususally considered individual or private, but measures to manage risk are actually social or public in nature. Furthermore, various externality issues are associated with household-related risk, such as its links to economic development, poverty reduction, social cohesion, and environmental quality. Hence the need for a holistic approach to risk management, or"social risk management,"which encompasses a broad spectrum of private and public actions. An asset-based approach to social risk management is presented, which provides an integrated approach to considering household, community, and extra-community assets and risk-management strategies. The conceptual framework for social risk management focuses on rural Sub-Saharan Africa. The report concludes with several suggestions on moving from concepts to actions.Health Economics&Finance,Insurance&Risk Mitigation,Banking Law,Environmental Economics&Policies,Banks&Banking Reform

Solutions for Impact Investors: From Strategy to Implementation

In writing this monograph, our main goal is to provide impact investors with tools to tighten the link between their investment decisions and impact creation. Our intent is threefold: to attract more capital to impact investing; to assist impact investors as they move from organizational change to executing and refining their impact investment decision-making process; and to narrow the gap within foundations between program professionals and investment professionals thereby contributing to a mutual understanding and implementation of a portfolio approach to impact investing.Additionally, we intend to help break down the barriers making it difficult to identify opportunities in impact investing. To this end, we provide examples throughout the monograph and at www.rockpa.org/impactinvesting of impact investment opportunities in most major asset classes.While we understand the important role that impact investors can play in providing financial capital, we also want to acknowledge the wide range of non-financial resources needed to address the world's problems. Our intent with this monograph is not to provide a comprehensive list of investments across asset classes nor any type of investment advice with regard to the selected profiles. We strongly encourage the reader to conduct their own assessment and evaluation for risk and suitability before considering any investment

Pulls, Pushes and Entitlement Failures in Labor Markets: Does the State of Development Matter?

This study adapts a relatively novel model of off-farm labor supply to the changing conditions of Bulgaria during the 1990s. The model’s parameters are estimated separately for each of the three different waves of the Bulgarian Integrated Household Survey, each reflecting remarkably different environmental conditions. Both the parameter values and the changes therein from one survey year to another are explained and used to characterize the way different types of households allocate their labor between farm and off-farm activities. The results demonstrate that Bulgarian households display many of the same labor supply patterns, including entitlement failures, as have previously been observed only in very poor developing countries. As such, they have potentially important policy making implications.

Can portfolio diversification increase systemic risk? evidence from the U.S and European mutual funds market

This paper tests the hypothesis that portfolio diversification can increase the threat of systemic financial risk. The paper provides first a theoretical rationale for the possibility that systemic risk may be increased by the proliferation of financial instruments that lead operators to hold increasingly similar portfolios. Secondly, the paper tests the hypothesis that diversification may result in increasing systematic risk, by analyzing the portfolio dynamics of some of the major world open funds.Systemic Risk, Portfolio Diversification, Mutual Funds, CAPM

Financial diversification before modern portfolio theory: UK financial advice documents in the late nineteenth and the beginning of the twentieth century

The paper offers textual evidence from a series of financial advice documents in the late nineteenth century and the early twentieth century of how UK investors perceived of and managed risk. In the world’s largest financial centre of the time, UK investors were familiar with the concept of correlation and financial advisers’ suggestions were consistent with the recommendations of modern portfolio theory in relation to portfolio selection strategies. From the 1870s, there was an increased awareness of the benefits of financial diversification - primarily putting equal amounts into a number of different securities - with much of the emphasis being on geographical rather than sectoral diversification and some discussion of avoiding highly correlated investments. Investors in the past were not so naïve as mainstream financial discussions suggest today

Improving regulations and supervision of pension funds : are there lessons from the Banking Sector?

The main objective of this paper is to review the regulatory framework for pension funds, and examine whether there is scope for improvements in pension regulation, particularly in light of regulatory and supervisory developments in the banking industry. The report is structured as follows: The second section summarizes the literature on banking regulation and supervision, identifying the areas of consensus and the trends in regulation and supervision across countries. The third section summarizes the literature on the regulation of pension funds. The fourth section examines the scope for improvements in pension regulation, identifying possible lessons from the banking sector to the pension industry. The fifth section provides a summary and concludes.Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Insurance&Risk Mitigation,Environmental Economics&Policies