Weekend Links - 5/12/17

QUOTE OF THE DAY

Investing is extremely difficult, even for the best and brightest. Randomness plays a far greater role in our success or failure than we’re comfortable with. And most of the time it’s better to be lucky than good. ritholtz

CHART OF THE DAY

RETIREMENT FINANCE AND PLANNING

Should You Use a Rising Equity Glide Path in Retirement? W. Pfau.  Perhaps the best implication from research along these lines is to at least not think about continuing to reduce stock allocations throughout retirement, and also that it may be okay to start retirement with a lower stock allocation than the traditional withdrawal rate studies suggest. 

Recommended Assumptions & Other Inputs to Develop Your Actuarial Budget Benchmark, Ken Steiner. 

Six common myths that can really mess up your retirement, CNBC.  These misconceptions can hurt your retirement savings and make life tougher in your golden years. Here's how to separate fact from fiction.  [thin and reductive but helpful]

How Will More Retirees Affect Investment Returns? Boston College.  research generally shows that retirees draw down their wealth much more slowly than expected, particularly the wealthy who hold most of the assets. Therefore, retirees still hold substantial assets, leading to a greater supply of savings and a decrease in investment returns. To the extent that investment returns decrease, workers will need to save more to maintain their standard of living in retirement. 

Retirement Ball’s in Employers’ Court, Boston College, the auto enrollment trend has stalled, and the crazy-quilt private-sector retirement system still has a lot of holes in it.  Even when companies automatically enroll their workers, the plans are often designed in ways that discourage them from saving enough, Morningstar’s David Blanchett, head of retirement research, concludes in his report. 

The Possibilities of Broader Diversification in Retirement, W Pfau.  If current bond yields are noticeably lower than usual, the average historical bond return will likely be of little relevance.  …  a wide range of asset allocations support withdrawal rates nearly as high as the optimal asset allocation. Many retirees will be able to support a withdrawal rate within 0.1 percentage point of the optimum with a markedly lower stock allocation. Conservative retirees need not be pressured into uncomfortably aggressive asset allocations, such as the recommendations for 50 to 75 percent stocks found in prominent research articles by Bill Bengen and others. 

Contributory Retirement Saving Plans: Differences across Earnings Groups and Implications for Retirement Security, SS Bulletin vol 77.  Using a nationally representative sample of Survey of Income and Program Participation respondents to data from their W-2 tax records, the authors find that DC plan access, participation, and contributions increase as earnings increase, even after controlling for key socioeconomic and labor-market covariates. They also find that, despite changing economic conditions, the earnings gradient changed little between 2006 and 2012. 

How To Predict Withdrawal Rates Without A Crystal Ball, PortfolioCharts.com  How do you calculate a 40-year withdrawal rate when the worst start date for a particular portfolio was less than 40 years ago?   

MARKETS AND INVESTING  

The Active Equity Renaissance: Behavioral Financial Markets, CFA institute.  [thin manifesto advocating behavioral finance as the proper filter for worldviews] 

ALTERNATIVE RISK

A New Paper Just Took a Huge Shot at Some of the World'sHottest Investments, Bloomberg.  Looking at 447 supposedly repeating price patterns identified in the last few decades, academics from Ohio State and the University of Cincinnati contend that more than half are basically figments of their discoverers’ imagination. The study, “Replicating Anomalies” by Kewei Hou, Chen Xue and Lu Zhang, attributed the findings to a statistical sleight of hand known as p-hacking. 

Pseudo-quants, financial-math.org.  And that’s a key flaw of academic financial models, that they are public: Humans will always find a way to turn a purported financial “law” on its head, and profit from those gullible enough to believe in it.    [If I could I might aspire to the low level of pseudo-quant]

Expectations with Tactical Equity, Newfound.  

Volatility risk premia in the commodity space, sr-sv.com  New evidence suggests that indeed volatility risk premia on commodity currencies have predictive power for subsequent commodity returns, while crude and gold premia have predictive power for other asset classes in accordance with the nature of these commodities. 

Revenge of the Humans: How Discretionary Managers Can CrushSystematics, Leigh Drogen. it’s hard to understand why anyone was willing to give most discretionary fund managers money in the first place. 

Women, Minorities Run Tiny Fraction of Global Assets, Knight Foundation Study Finds, CIO.  Investment firms owned by women and minorities run just 1.1% of the trillions of dollars overseen by the global asset management industry, according to a report issued this week by the James S. and John L. Knight Foundation. 

SOCIETY AND CAPITAL

All the President's Friends: Political Access and Firm Value, SSRN.  Using novel data on White House visitors from 2009 through 2015, we find that corporate executives’ meetings with key policymakers are associated with positive abnormal stock returns.  

The Economics of Subsidizing Sports Stadiums, St. Louis Fed.  "The idea that sports is a catalyst for economic development just doesn’t hold water.”  —Robert Baade, sports economist.  

Where Do Students Go When For-Profit Colleges Lose FederalAid? Philly Fed.  These enrollment losses in the for-profit sector are offset by gains in enrollment in local community colleges, suggesting that the loss of federal student aid for poor-performing for-profit colleges does not reduce overall college-going but instead shifts students across higher education sectors. Finally, we provide suggestive evidence that students induced to enroll in community colleges following a for-profit competitor’s sanction are less likely to default on their federal loans.  

The Link between Family Structure and Wealth Is Weaker ThanYou Might Think, St. Louis Fed.  Our interpretation is that any correlation between family structure and wealth that exists in aggregate data is largely spurious. That is, it reflects deeply rooted structural, systemic or other unobservable factors that differ across races and ethnicities. 

Numbers V Emotions.  NYT via abnormalreturns.com The point of money is not to make you more money.