We study the possibility that, aside from standard sources of utility, investors also derive utility from realizing gains and losses on assets that they own.

We propose a tractable model of this “realization utility,” derive its predictions, and show that it can shed light on a number of puzzling facts. These include the poor trading performance of individual investors, the disposition effect, the greater turnover in rising markets, the effect of historical highs on the propensity to sell, the negative premium to volatility in the cross-section, and the heavy trading of highly valued assets.

Underlying some of these applications is one of our model’s more novel predictions: that, even if the form of realization utility is linear or concave, investors can be risk-seeking.

 

This paper examines the stock price impact of 163 announcements of Sovereign Wealth Fund (SWF) investments. We document an average positive risk-adjusted return of 2.1 percent for target firms during two days surrounding SWF acquisition announcements.

The announcement effect is both statistically and economically significant. A multivariate analysis shows that the degree of transparency of SWF activities is an important determinant of the market reaction, and both the SWF and the existing shareholders of the target firm benefit from improved SWF disclosure.

In addition, target firms’ profitability, growth, and governance do not change significantly in the three-year period following the SWF investment relative to a control sample.

These results are robust to a battery of tests. Overall, our findings suggest that SWF investments convey a positive signal to market participants about the target firm, increased SWF transparency is enjoyed by both the SWF and existing shareholders, and SWFs are passive investors.

 

The goal of the research was to drill deeply into the evolving forces in the industry and present a plausible picture of its future landscape, through both near-term and longer-term trends.

Our time horizon looked out towards 2020. We, however, acknowledge the considerable difficulties with longer-range forecasting given the increasing pace of change.

There is one word that captures the flavour of the next few years in the financial industry – complexity.

 

US investors have increased their sophistication in real estate investing – more private real estate, a greater risk appetite and use of synthetic investment tools. Rob Kochis and Christopher Lennon report.

The unwinding of several high profile infrastructure funds in the recent past has prompted questions as to the performance of infrastructure assets/investments and the impact of the current credit markets, on the outlook for the sector.

Mercer remains positive on the long-term fundamentals for the infrastructure sector, especially in the emerging markets. Moreover, we believe that the credit crunch will likely provide the catalyst for differentiating between the capable and less capable managers.

This article examines the performance of infrastructure in the context of the state of today’s credit markets.

Over the last several years, institutional investors have more than doubled their allocation, to over $110 billion, to financial products whose returns are linked to those of commodity indices.

Commodities may be attractive due to the low correlation between the returns of commodities and those of other asset classes, the high correlation of commodities returns with unexpected inflation, or the rising demand for commodities from fast growing emerging markets countries, such as China and India.

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