Management Science (2013) 1-3

1. Management Science (2013)1-3 王素娟

2. Summary • Methodology : • Theoretical research:4 • Empirical Research:2 • Experiment Research:1 • Topic: • Corporate governance:1 • Risk management 2 • Capital asset pricing and portfolio theory :3 • Behavioral finance:1 • Innovation: updating (model)of old problem; new method of old problem; old method of new problem; new method of new problem

3. Diversity and Performance Feng Li, Venky Nagar Management Science 59(3), pp. 529–544 Corporate governance

4. Motivation • Diversity: open to new ideas and opportunities • Performance: Finance and operating This empirical investigation is valuable because strong theoretical arguments exist both in support of diversity and against it.

5. Methodology - Empirical Research • Diversity: open to new ideas and opportunities same-sex domestic partnership benefit (SSDPB) policies • (the calendar portfolio approach) Diversity An organization’s stance on gay rights is likely to be a good proxy for its real attitudes toward diversity. Same-sex domestic partnership benefit (SSDPB) policies (Human Rights Campaign (HRC)http://www.hrc .org/) Performance future stock returns The calendar portfolio approach CRSP database

6. Conclusion and Contribution • The results show that holding these firms upon their SSDPB initiation in a calendar portfolio earns a four-factor annualized excess return (alpha) of approximately 10%over the 1995–2008 sample period, beating 95% of all professional mutual funds in the United States. • The insight for management: SSDPB adopters also show significant improvement in operating performance relative to nonadopters. • Contribution : • A measure of diversity • Empirical Research

7. Worst-Case Value at Risk of Nonlinear Portfolios Steve Zymler, Daniel Kuhn, Berç Rustem Management Science 59(1), pp. 172–188 Risk management

8. Motivation and Contribution • non-convex, • fails to satisfy the subadditivity property of coherent • requires joint probability distribution of the asset returns VAR WVAR WPVaRWQVaR it tends to be overpessimistic and thus may result in undesirable portfolio allocations when portfolios containing derivatives portfolios containing long positions in European options expiring at the end of the investment horizon, portfolios containing long and/or short positions in European and/or exotic options expiring beyond the investment horizon

9. Contribution The insight for management: Advances in portfolio optimization with considerable downside risk allow for more tractable portfolio optimization. updating of old problem

10. The Role of Experience Sampling and Graphical Displays on One’s Investment Risk Appetite Christine Kaufmann, Martin Weber, Emily Haisley Management Science 59(2), pp. 323–340 Risk management

11. Motivation • According to standard models of portfolio choice or lifetime consumption, households should invest at least a small fraction of their wealth into the stock market as soon as they start saving.(56% in the United States, 36% in the Netherlands, 23% in Great Britain and Northern Ireland, and 6% in Germany) • Participation: financial professionals should provide clients with tools that better explain risk-return profiles of investment opportunities.

12. Methodology One’s Investment Risk Appetite risk-presentation modes • numerical descriptions, • experience sampling, • graphical displays, • combination of these formats in the “risk tool.” • risk-taking behavior, • investors’ recall ability of the risk-return profile of financial products Decisions from description are based on explicitly stated probabilities associated with outcomes. Decisions from experience are based on sampling possible outcomes, meaning that the underlying probabilities must be judged or inferred based on the observed evidence. Methodology: Experiment

13. Conciusion and contrubution • A risk presentation format that incorporates experience sampling and distributions of returns may help investors by increasing decision commitment, confidence, and recall ability as well as reducing known biases as the overestimation of the loss probability. These factors result in an increased willingness to accept risk in one’s portfolio. • The insight for management: Presenting fund performance graphically changes the perception of the desirability of the investment • Contribution: • Comprehensive research of risk-presentation; • Methodology: Experiment

14. Solving Constrained Consumption–InvestmentProblems by Simulation of Artificial Market Strategies Björn Bick, Holger Kraft, Claus Munk Management Science 59(2), pp. 485–503, Capital asset pricing and portfolio theory

15. Motivation • Utility-maximizing consumption and investment strategies in closed form are unknown for realistic settings involving portfolio constraints, incomplete markets, and potentially a high number of state variables.

16. Contribution The authors propose a numerical procedure that Combines the abstract idea of artificial, unconstrained complete markets, well- known closed-form solutions in affine or quadratic return models, straightforward Monte Carlo simulation, and a standard iterative Optimization routine (SAMS). The insight for management: New approaches to solving consumption investment problems to near optimality allow for more efficient solution times. Contribution :New approaches of old problem

17. Market Crashes, Correlated Illiquidity, andPortfolio Choice Hong Liu, Mark Loewenstein Management Science 59(3), pp. 715–732 Capital asset pricing and portfolio theory

18. Motivation • The recent financial crisis highlights several potentially important fundamental elements for optimal portfolio choice. First, event risks such as a market crash may be significant; second, market Liquidity may dry up after a crash; third, the probability of another crash may increase after a crash; and fourth, other investment opportunity set parameters (e.g., market volatility) may also change after a crash. • The optimal trading strategy in the presence Of market crashes that can trigger changes in the investment opportunity set has not been studied in the existing literature.

19. Contribution and conclusion • Contribution we develop a flexible portfolio choice model where market crashes can trigger switching into another regime with a different investment opportunity set. (updating of old problem) • Conclusions In contrast to standard portfolio choice models, changes in the investment opportunity set in one regime can affect the optimal trading strategy in another regime even in the absence of transaction costs. • The insight for management: Portfolio choice might change dramatically in the case of broad shifts in market prices.

20. Intertemporal CAPM with Conditioning Variables Paulo Maio Management Science 59(1), pp. 122–141 Capital asset pricing and portfolio theory

21. Motivation Common to these papers is the assumption that the factor betas/risk prices in the expected return-beta representation are constant through time. ICAPM The beta/price of risk of aggregate cash-flow news is assumed to be time varying, the conditional cash-flow beta is assumed to be linear in a state variable, leading to a scaled ICAPM that contains three factors: revisions in future aggregate cash flows (cash-flow news), revisions in future market discount rates (discount-rate news), and a scaled factor that corresponds to the interaction of cash-flow news and the lagged state variable.

22. Conclusions and contribution • The author finds that the scaled ICAPM performs well in general,and prices particularly well the momentum portfolios. It compares favorably with alternative asset pricing Models in pricing both sets of equity portfolios. Furthermore, the scaled factor is decisive to account for the dispersion in average excess returns between past winner and past loser stocks. • The insight for management: A time-varying cash-flow beta/price of risk provides a rational explanation for momentum. • Contribution: Model updating ,nearer to realization

23. Individual vs. Aggregate Preferences:The Case of a Small Fish in a Big Pond Douglas W. Blackburn, Andrey D. Ukhov Management Science 59(2), pp. 470–484 Behavioral finance

24. Motivation • The relation between risk preferences of individual agents in the economy and the attitude toward risk in the aggregate is fundamental in financial economics. • The asset-pricing literature has grown in two important directions. The first line of literature focuses on the aggregate market. ( explain fundamental aggregate market characteristics such as expected returns and volatility). The second line of literature focuses on the behavior of Individuals • It is only by aggregating individual demands that we can determine how individual behavior impacts aggregate prices. Yet this is a critical gap in the literature. This paper makes several important statements regarding the relationship between the aggregate economy and the individuals supporting the economy.

25. Conclusionand Contribution • we demonstrate that the difference between individual preferences and aggregated preferences can be large.( risk seekers. can lead to an aggregate economy that is risk averse. The converse is also true. (perfect competition, the existence of budget constraints, and agent heterogeneity) • The insight for management: Understanding the relationship between the preferences of individuals and the preferences of the aggregate economy is crucial for understanding the connection between the behavioral finance literature, which focuses on individual preferences, and the asset-pricing literature, which focuses on aggregate prices. Contribution: new problem