The relevance of primary dealers for public bond issues

We analyze the role of different kinds of primary and secondary market interventions for the government's goal to maximize its revenues from public bond issuances. Some of these interventions can be thought of as characteristics of a "primary dealer system". After all, we see that a primary dealer system with a restricted number of participants may be useful in case of only restricted competition among sufficiently heterogeneous market makers. We further show that minimum secondary market turnover requirements for primary dealers with respect to bond sales seem to be in general more adequate than the definition of maximum bid-ask-spreads or minimum turnover requirements with respect to bond purchases. Moreover, official price management operations are not able to completely substitute for a system of primary dealers. Finally it should be noted that there is in general no reason for monetary compensations to primary dealers since they already possess some privileges with respect to public bond auction

Kimball's prudence and two-fund separation as determinants of mutual fund performance evaluation

We consider investors with mean-variance-skewness preferences who aim at selecting one out of F different funds and combining it optimally with the riskless asset and direct stock holdings. Direct stock holdings are either exogenously or endogenously determined. In our theoretical section, we derive and discuss several performance measures for the investor's decision problems with a central role of Kimball's (1990) prudence and of several variants of Sharpe and Treynor measures. In our empirical section, we show that the distinction between exogenous and endogenous stock holding is less important than the issue of skewness preferences. The latter are most relevant for fund rankings, when an investor's skewness preferences are not derived from cubic HARA utility so that the two-fund separation theorem is not valid. Keywords: investor specific performance measure, performance evaluation, prudence, skewness preferences --

Two-Fund separation and positive marginal utility

The requirement of positive marginal utility only makes it possible to derive a restricted twofund separation theorem for portfolio selection problems replacing the original separation theorem of Cass and Stiglitz (1970). We use our findings for a re-examination of the bias-in-beta problem in mutual funds performance evaluation and of the relevance of the standard CAPM without borrowing restrictions. We also present empirical evidence for the only limited validity of the separation theorem when explicitly recognizing positive marginal utility. Moreover, quadratic utility functions are not apt to approximate the admissible range of risk preferences in the case of higher-order utility functions. --two-fund separation,HARA utility,positive marginal utility,borrowing restrictions,Capital Asset Pricing Model, bias in beta, performance evaluation

Implied rates of return, the discount rate effect, and market risk premia

We show analytically under quite general conditions that implied rates of return based on analysts' earnings forecasts are only a downward biased estimator for future expected one-period returns and therefore not suited for computing market risk premia. The extent of this bias is substantial as verified by a bootstrap approach. We present an alternative estimation equation for future expected one-period returns based on current and past implied rates of return that is superior to simple estimators based on historical returns. The reason for this superiority is a lower variance of estimation results and not the circumvention of the discount rate effect typically stated as a major problem of estimators based on historical return realizations. The superiority of this new approach for portfolio selection purposes is verified numerically for our bootstrap environment and empirically for real capital market data. --analysts' earnings forecasts,discount rate effect,equity premium puzzle,implied rate of return

Performance evaluation, portfolio selection, and HARA utility

Our main goal is the generalization of the approach of Jobson and Korkie(1984) for funds performance evaluation. Therefore, we consider the portfolio selection problem of an investor who faces short sales restrictions when choosing among F different investment funds and assume the investor's utility function to be of the HARA type. We develop a performance measure and discuss its relationships to Treynor(1965), Sharpe(1966), Jensen(1968), Prakash and Bear(1986), and Grinblatt and Titman(1989). Particular attention is given to the special case of cubic utility implying skewness preferences. Our findings are illustrated by an empirical example. --HARA utility,performance evaluation,portfolio selection,skewness

Coherent banking capital and optimal credit portfolio structure

Coherent measures of a bank's whole risk capital imply a structure of a bank's optimal credit portfolio that is independent of its deposits and the expected deposit rate, of expected bankruptcy costs and of expected costs of regulatory capital. --Basel II,Regulatory Capital,Coherent Risk Capital,Separation

Investors' direct stock holdings and performance evaluation for mutual funds

Investors need performance measures particularly as a means for funds selection in the process of exante portfolio optimization. Unfortunately, there are various performance measures recommended for different decision situations. Since an investor may be uncertain which kind of decision problem is best apt to describe his personal situation the question arises up to which extent funds rankings react sensitive with respect to changes in performance measurement. To be more precise, an investor with mean-variance preferences is considered who is trying to identify the best fund f* out of a set consisting of F funds and to combine this one optimally with the direct holding of a broadly diversified (reference) portfolio P of stocks as well as riskless lending or borrowing. For an investor just starting to acquire risky securities all three fractions of the various assets in question as part of his overall portfolio can be considered variable, while there also might be investors with already given direct holdings of stocks amounting to a certain fraction of their total wealth which cannot or shall not be altered. For both situations different adequate performance measures have been suggested by Breuer/Gürtler (1999, 2000) and Scholz/Wilkens (2003). We analyze theoretically as well as empirically possible deviations in resulting funds rankings for the two decision situations described previously. While there are indeed only loose theoretical relationships between the performance measures under consideration, empirical evidence suggests almost identical funds rankings. As a consequence, potential investors need not bother much about whether their situation is best described by an already fixed or a still variable amount of direct stock holdings. Moreover, traditional performance measures like the Sharpe ratio or the Treynor ratio will in general lead to reasonable funds selection in both situations. -- Performancemaße werden von Investoren insbesondere als Mittel zur Selektion von Investmentfonds im Rahmen von Ex-ante-Optimierungen verwandt. Unglücklicherweise existieren verschiedene Performancemaße für unterschiedliche Entscheidungsprobleme. Da ein Anleger im Unklaren darüber sein mag, welches Entscheidungsproblem am besten seine persönliche Situation beschreibt, drängt sich die Frage auf, in welchem Ausmaß Fondsrankings auf einen Wechsel des Performancemaßes reagieren. Präziser formuliert, wird ein Investor mit u-o-Präferenzen betrachtet, der versucht, den besten Fonds f* aus einer Menge von F zur Auswahl stehenden zu bestimmen und diesen in optimaler Weise mit dem direkten Halten eines breit diversifizierten (Referenz-) Portfolios P aus Aktien sowie risikoloser Anlage bzw. Verschuldung zu kombinieren. Aus Sicht eines Investors, der gerade beginnt, seine Mittel in riskanten Aktiva anzulegen, können alle Anteile der verschiedenen Aktivaklassen an seinem Gesamtvermögen als variabel aufgefasst werden, während auch Anleger mit bereits vor Fondsselektion gegebenem positiven Aktienengagement existieren mögen, das nicht ohne weiteres geändert werden kann oder soll. Für beide Situationen wurden geeignete Performancemaße vorgeschlagen, und zwar von Breuer/Gürtler (1999, 2000) und Scholz/Wilkens (2003). Mögliche Unterschiede in den jeweiligen Fondsreihungen für die beiden genannten Entscheidungssituationen werden theoretisch wie empirisch untersucht. Während sich nur lockere theoretische Zusammenhänge belegen lassen, weist der empirische Befund auf tatsächlich fast identische Reihungen hin. Als Konsequenz hieraus müssen sich potentielle Anleger nicht allzu viele Gedanken darüber machen, ob ihre Situation besser durch ein fixes oder ein variables Aktienengagement beschrieben wird. Ferner führen traditionelle Performancemaße wie die Sharpe Ratio oder die Treynor Ratio in beiden Entscheidungssituationen zu akzeptablen Reihungen.Performance measurement,Sharpe ratio,Treynor ratio,optimal portaolio selection,Performancemessung,Sharpe-Maß,Treynor-Maß,optimale Portfolioselektion

Analysts' dividend forecasts, portfolio selection, and market risk premia

The most relevant practical impediment to an application of the Markowitz portfolio selection approach is the problem of estimating return moments, in particular return expectations. We analyze the consequences of using return estimates implied by analysts' dividend forecasts under the explicit notion of taxes and non-flat term structures of interest rates and achieve quite good performance results. As a by-product, these results cast some doubt upon the adequacy of estimating market risk premia with implied returns, because estimation techniques with good performance results are hardly suited to describe market expectations. --analysts' forecasts,CAPM,implied returns,market risk premium,portfolio optimization,return estimation

Стохастическое моделирование физико-механических полей

В статье предлагаются конструктивные методы и алгоритмы стохастического моделирования физико-механических полей на основе теории R-функций и нечёткой логики, позволяющие учитывать технические и технологические допуски на геометрическую и физическую информацию, погрешности измерений, ошибки округления, и на основе анализа их комплексного влияния на решение делать экспертное заключение.The constructive methods and algorithms for simulation of physical-mechanical fields based on the Rfunctions theory and fuzzy logics are elaborated which allow us take into account technical and technological assumptions on geometrical and physical informations, meassuring errors, rounding errors, and draw expert conclusions

Kimball's prudence and two-fund separation as determinants of mutual fund performance evaluation

"We consider investors with mean-variance-skewness preferences who aim at selecting one out of F different funds and combining it optimally with the riskless asset and direct stock holdings. Direct stock holdings are either exogenously or endogenously determined. In our theoretical section, we derive and discuss several performance measures for the investor’s decision problems with a central role of Kimball’s (1990) prudence and of several variants of Sharpe and Treynor measures. In our empirical section, we show that the distinction between exogenous and endogenous stock holding is less important than the issue of skewness preferences. The latter are most relevant for fund rankings, when an investor’s skewness preferences are not derived from cubic HARA utility so that the two-fund separation theorem is not valid." [author's abstract