The value of tail risk hedging in defined contribution plans: What does history tell us

Hedging against tail events in equity markets has been forcefully advocated in the aftermath of recent global financial crisis. Whether this is beneficial to long horizon investors like employees enrolled in defined contribution (DC) plans, however, has been subject to criticism. We conduct historical simulation since 1928 to examine the effectiveness of active and passive tail risk hedging using out of money put options for hypothetical equity portfolios of DC plan participants with 20 years to retirement. Our findings show that the cost of tail hedging exceeds the benefits for a majority of the plan participants during the sample period. However, for a significant number of simulations, hedging result in superior outcomes relative to an unhedged position. Active tail hedging is more effective when employees confront several panic-driven periods characterized by short and sharp market swings in the equity markets over the investment horizon. Passive hedging, on the other hand, proves beneficial when they encounter an extremely rare event like the Great Depression as equity markets go into deep and prolonged decline.

The appropriateness of default investment options in defined contribution plans : Australian evidence

For participants in defined contribution (DC) plans who refrain from exercising investment choice, plan contributions are invested following the default investment option of their respective plans. Since default investment options of different plans vary widely in terms of their benchmark asset allocation, the most important determinant of investment performance, participants enrolled in these options face significantly different wealth outcomes at retirement. This paper simulates the terminal wealth outcomes under different static asset allocation strategies to evaluate their relative appeal as default investment choice in DC plans. We find that strategies with low or moderate allocation to stocks are consistently outperformed in terms of upside potential of exceeding the participant’s wealth accumulation target at retirement as well as downside risk of falling below that target outcome by aggressive strategies whose allocation to stocks approach 100%. The risk of extremely adverse wealth outcomes for plan participants also does not appear to be very sensitive to asset allocation. Our evidence suggests the appropriateness of strategies heavily tilted towards stocks to be nominated as default investment options in DC plans unless plan providers emphasize predictability of wealth outcomes over adequacy of retirement wealth.

Framework for assessing financial literacy and superannuation investment choice decisions

There is a worldwide trend towards rapidly growing defined contribution pension funds in terms of assets and membership, and the choices available to individuals. This has shifted the decisionmaking responsibility to fund members for managing the investment of their retirement savings. This change has given rise to a phenomenon where most superannuation fund members are responsible for either actively choosing or passively relying on their funds’ default investment options. Prior research identifies that deficiencies in financial literacy is one of the causes of inertia in financial decision-making and findings from international and Australian studies show that financial illiteracy is wide-spread. Given the potential significant economic and social consequences of poor financial decision-making in superannuation matters, this paper proposes a framework by which the various demographic, social and contextual factors that influence fund members’ financial literacy and its association with investment choice decisions are explored. Enhanced theoretical and empirical understanding of the factors that are associated with active/passive investment choice decisions would enable development of well-targeted financial education programs.

Financial literacy and pension investment decisions

The call for enhanced financial literacy amongst consumers is a global phenomenon, driven by the growing complexity of financial markets and products, and government concerns about the affordability of supporting an ageing population. Worldwide, defined benefit pensions are giving way to the risk and uncertainty of defined contribution superannuation/pension funds where fund members now make choices and decisions that were once made on their behalf. An important prerequisite for informed financial decision-making is adequate financial knowledge and skills to make competent investment decisions. This paper reports the findings of an online survey of the members of a large Australian public sector-based superannuation fund and shows that although respondents generally understand basic financial matters, on average, their understanding of investments concepts, such as the relationship between risk and returns, is inadequate. These results highlight the need for education programs focusing specifically on developing fund members’ investment knowledge and skills to facilitate informed retirement savings decisions.

Are target date funds the easy bake option?

Target date funds provide a simple, automated approach to retirement savings in defined contribution plans. The passing of the Pension Protection Act of 2006 has seen an increase in the popularity of these funds in the United States, becoming the default option for many plans. However, recent research findings have challenged the easy bake or ‘set-and-forget’ nature of target date funds. This study explores some of the critical design features of target date funds (which shifts an individual’s asset allocation from growth to defensive assets following a pre-set glidepath) against a simple balanced (or target risk) fund design. Using both time-weighted and dollar-weighted returns, our results suggest that there is more to achieving successful retirement outcomes than the investor simply selecting a proposed year of retirement. Our findings can perhaps be summarized by Einstein’s famous epithet, that in the murky world of retirement product design, everything should be made as simple as possible, but not simpler.

The determinants of hiring older workers in Britain revisited: an analysis using WERS 2004

This article reexamines the role of specific human capital and back loading of compensation as deterrents to hiring older workers. We utilize the framework initially suggested by Hutchens (1986) and more recently implemented by Daniel and Heywood (2007). This approach identifies the extent to which firms hire older workers at a rate less than full replacement would imply. Using the 2004 British Workplace Employment Relations Survey, we examine whether a more favourable climate including a much tighter UK labour market combined with the abandonment of defined benefit pension schemes has increased the tendency to hire older workers. We also examine the impact of private health insurance.

Modelling the Contribution of Knowledge Management towards Achieving Orgnisational Business Objectives

Knowledge management (KM) continues to receive mounting interest within the construction industry due to its potential to offer solutions for organisations seeking competitive advantage. This paper presents a KM input-process-output conceptual model comprising unique and well-defined theoretical constructs representing KM practices and their internal and external determinants in the context of construction. The paper also presents the underlying principles used in operationally defining each construct using extant KM literature, and offers a number of testable hypotheses that capture the inter-relationships between the identified constructs.

Are lifecycle funds appropriate as default options in participant-directed retirement plans?

The appropriateness of default investment options in participant-directed retirement plans like 401(k) has been in sharp focus given that most participants fail to nominate an investment option to direct their contributions. In United States (US), prior to the Pension Protection Act (PPA) of 2006, plan fiduciaries often selected a money market fund as the default option. Whilst this ‘low risk and low return’ investment option was considered to be a ‘safe’ choice by many fiduciaries who were fearful of litigation risk, it was heavily criticized for resulting in inadequate wealth at retirement, particularly when retirees were living much longer and facing inflation risk (see, for example, Viceira, 2008; Skinner, 2009)...

The SEA-CALIPSO volcano imaging experiment at Montserrat : plans, campaigns at sea and on land, scientific results, and lessons learned

Since 1995 the eruption of the andesitic Soufrière Hills Volcano (SHV), Montserrat, has been studied in substantial detail. As an important contribution to this effort, the Seismic Experiment with Airgunsource-Caribbean Andesitic Lava Island Precision Seismo-geodetic Observatory (SEA-CALIPSO) experiment was devised to image the arc crust underlying Montserrat, and, if possible, the magma system at SHV using tomography and reflection seismology. Field operations were carried out in October–December 2007, with deployment of 238 seismometers on land supplementing seven volcano observatory stations, and with an array of 10 ocean-bottom seismometers deployed offshore. The RRS James Cook on NERC cruise JC19 towed a tuned airgun array plus a digital 48-channel streamer on encircling and radial tracks for 77 h about Montserrat during December 2007, firing 4414 airgun shots and yielding about 47 Gb of data. The main objecctives of the experiment were achieved. Preliminary analyses of these data published in 2010 generated images of heterogeneous high-velocity bodies representing the cores of volcanoes and subjacent intrusions, and shallow areas of low velocity on the flanks of the island that reflect volcaniclastic deposits and hydrothermal alteration. The resolution of this preliminary work did not extend beyond 5 km depth. An improved three-dimensional (3D) seismic velocity model was then obtained by inversion of 181 665 first-arrival travel times from a more-complete sampling of the dataset, yielding clear images to 7.5 km depth of a low-velocity volume that was interpreted as the magma chamber which feeds the current eruption, with an estimated volume 13 km3. Coupled thermal and seismic modelling revealed properties of the partly crystallized magma. Seismic reflection analyses aimed at imaging structures under southern Montserrat had limited success, and suggest subhorizontal layering interpreted as sills at a depth of between 6 and 19 km. Seismic reflection profiles collected offshore reveal deep fans of volcaniclastic debris and fault offsets, leading to new tectonic interpretations. This chapter presents the project goals and planning concepts, describes in detail the campaigns at sea and on land, summarizes the major results, and identifies the key lessons learned.

Contribution of siderophore systems to growth and urinary tract colonization of asymptomatic bacteriuria Escherichia coli

The molecular mechanisms that define asymptomatic bacteriuria (ABU) Escherichia coli colonization of the human urinary tract remain to be properly elucidated. Here, we utilize ABU E. coli strain 83972 as a model to dissect the contribution of siderophores to iron acquisition, growth, fitness, and colonization of the urinary tract. We show that E. coli 83972 produces enterobactin, salmochelin, aerobactin, and yersiniabactin and examine the role of these systems using mutants defective in siderophore biosynthesis and uptake. Enterobactin and aerobactin contributed most to total siderophore activity and growth in defined iron-deficient medium. No siderophores were detected in an 83972 quadruple mutant deficient in all four siderophore biosynthesis pathways; this mutant did not grow in defined iron-deficient medium but grew in iron-limited pooled human urine due to iron uptake via the FecA ferric citrate receptor. In a mixed 1:1 growth assay with strain 83972, there was no fitness disadvantage of the 83972 quadruple biosynthetic mutant, demonstrating its capacity to act as a “cheater” and utilize siderophores produced by the wild-type strain for iron uptake. An 83972 enterobactin/salmochelin double receptor mutant was outcompeted by 83972 in human urine and the mouse urinary tract, indicating a role for catecholate receptors in urinary tract colonization.

From certificate chasing to genuine engagement : the contribution of curriculum design to students' career intent in a subfield

Many students enter business degrees without a defined career goal beyond working in the business world and adopt a scattergun approach to employability by accumulating certifications accessed through individual subjects. Yet, space and time limitations commonly prevent extended exposure to rewarding and interesting career subfields within main specialisations. This case study draws on student feedback collected over three years exploring students’ career interest following an elective human resource development subject in the final stage of a human resources major. Project-based curriculum provided students with scaffolded learning while undertaking key multiphase human resource development tasks. Subsequently, students reported human resource development career interest and intent, attributed to more realistic appreciation of human resource development’s activities, scope, and values. The paper makes an important contribution illustrating how curriculum design can transform instrumentalism into logically, emotionally, and intuitively based career engagement. Further, human resource development is a study and career area little mentioned in higher education or careers literature.

Subtypes of psychotic-like experiences are differentially associated with suicidal ideation, plans and attempts in young adults

Psychotic-like experiences (PLEs) have been associated with increased risk of suicidality, but it is unclear whether the level of risk varies with different types of PLE. A cross-sectional online survey was completed by 1610 university students. Respondents completed the Community Assessment of Psychic Experiences-15 (CAPE-P15) assessing PLEs on three subscales: Perceptual Abnormalities (PA), Persecutory Ideation (PI) and Bizarre Experiences (BE). Lifetime suicidal ideation, plans and attempts, cannabis, ecstasy and methamphetamine use and family history of mental disorder were also assessed. Multinomal logistic regression was used to examine unique determinants of lifetime suicidality, defined as any history of (i) suicidal ideation or plans and (ii) any attempt, relative to no lifetime history of suicidality. A lifetime history of PA and PI provided significant unique contributions to the prediction of suicide risk, after control for other significant predictors. BE were not associated with any suicide variable demonstrating the variation in risk of suicidality with different types of PLEs. Perceptual abnormalities and persecutory ideation as measured by the CAPE-P15 are the PLEs associated with a higher risk of lifetime suicidality.