The British origins of the US endowment model

David Chambers, Elroy Dimson 20 October 2014

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In recent years much attention has been given to the so-called ‘Yale model’, an approach to investing practised by the Yale University Investments Office in managing its $24 billion endowment. The core of this model is an emphasis on diversification and on active management of equity-orientated, illiquid assets (Yale 2014). Yale has generated returns of 13.9% per annum over the last 20 years – well in excess of the 9.2% average return on US college and university endowments. Other leading US university endowments have followed this model (Lerner et al. 2008).

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Topics:  Financial markets

Tags:  investment, endowments, university endowments, college endowments, Universities, Keynes, asset management, diversification, Great Depression, Great Recession, buy-and-hold, equity investing, portfolio management, Yale, Cambridge

How insurers differ from banks: Implications for systemic regulation

Christian Thimann 17 October 2014

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Regulation of the insurance industry is entering a new era. The global regulatory community under the auspices of the Financial Stability Board (FSB) is contemplating regulatory standards for insurance groups that it deems to be of systemic importance. Nine insurance groups received this FSB classification in 2013, and the design of systemic regulation for these groups is now in progress.

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Topics:  Financial markets

Tags:  insurance, reinsurance, banking, financial intermediation, regulation, systemic risk, maturity transformation, BASEL III, investment, capital, capital requirements, bail-in, loss absorption

New-breed global investors and emerging-market financial stability

Gaston Gelos, Hiroko Oura 23 August 2014

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The investor base matters since different investors behave differently. During the emerging-market sell-off episodes in 2013 and early 2014:

  • Retail-oriented mutual funds withdrew aggressively, but investors from different regions also tended to behave differently;
  • Institutional investors such as pension funds and insurance companies with long-term strategies broadly maintained their emerging-market investments.

Figure 1 shows the facts.

Figure 1. Bond flows to emerging-market economies 

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Topics:  Financial markets International finance

Tags:  Pension Funds, financial stability, capital flows, investment, emerging markets, financial deepening, herding, original sin, mutual funds, institutional investors

The unrecognised benefits of grade inflation

Raphael Boleslavsky, Christopher Cotton 16 August 2014

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Since the early 1980s, the mean grade point average at American colleges and universities has risen at a rate of between 0.1 and 0.15 points per decade. Most of this increase can be attributed to an increase in the share of As assigned (which now comprise nearly half of all grades), with significant drops in the assignment of lower grades (Rojstaczer 2011 and Rojstaczer and Healy 2012).

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Topics:  Education Labour markets

Tags:  education, human capital, investment, grade inflation

Secular stagnation: Facts, causes, and cures – a new Vox eBook

Coen Teulings, Richard Baldwin 10 September 2014

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Teaser from original column posted on 15 August 2014

Six years after the Crisis and the recovery is still anaemic despite years of zero interest rates. Is ‘secular stagnation’ to blame? This column introduces an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser, and a dozen others. It is too early to tell whether secular stagnation is really secular, but if it is, current policy tools will be obsolete. Policymakers should start thinking about potential solutions.

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  interest rates, US, Europe, Japan, investment, macroeconomics, Great Recession, zero lower bound, savings, secular stagnation, SecStag debate

Piketty’s laws with investment replacement and depreciation

Ton van Schaik 06 July 2014

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Thomas Piketty has recently drawn worldwide attention with the proposition that the disparity between wage earners and capital owners is increasing, and that governments should intervene to bring this process to a standstill.

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Topics:  Frontiers of economic research Macroeconomic policy

Tags:  investment, capital depreciation

Do all firms have equal access to external financing?

Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell 29 June 2014

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The proportion of bank loan acceptances has fallen significantly following the crisis, along with the level of enterprise investment. The sharpest falls in both have been in countries hardest hit by the crisis. While in a number of countries – such as Finland, Malta, and Sweden – the declines have been modest, in others – such as in Bulgaria, Ireland, Denmark, Lithuania, Spain, and Greece – they have approached or exceeded 30%.

Figure 1. Percentage change in bank loan acceptances

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Topics:  EU policies Financial markets

Tags:  investment, lending, credit, Finance, SMEs, credit rationing, borrowing, information asymmetries

Lacklustre investment in the Eurozone: Is there a puzzle?

Marco Buti, Philipp Mohl 04 June 2014

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On the importance of investment for the Eurozone economy

According to the European Commission’s most recent forecast, real economic activity in the Eurozone is expected to recover at a moderate pace until 2015, and to remain significantly weaker than in the US (European Commission 2014a).

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Topics:  EU policies Macroeconomic policy

Tags:  eurozone, growth, European Commission, investment, uncertainty, structural reforms, Bankruptcy, Eurozone crisis, public investment, banking union, financial fragmentation

US electrification in the 1930s

Carl Kitchens 29 January 2014

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In 1930, fewer than 10% of farms in the US had access to electricity. By the mid-1950s, almost every farm in the country had electricity. While the US was able to extend electricity to its rural locations rapidly over a 25-year period, much of the developing world still remains without electricity today. In 2012, 1.3 billion people lived without electricity worldwide.

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Topics:  Development Economic history

Tags:  growth, Agriculture, technology, investment, subsidies, electricity, infrastructure, electrification

Why Asian firms hold cash

Charles Yuji Horioka, Akiko Terada-Hagiwara 25 January 2014

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In many, if not most, economies, sharp declines in household saving rates have been offset by sharp increases in corporate saving rates for the past two decades (see, for example, Karabarbounis and Neiman 2012). Even so, relatively little research has been done on the determinants of corporate saving.

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Topics:  Financial markets

Tags:  investment, Asia, saving, financial frictions, savings, corporate saving, borrowing constraints

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