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Management Science (2013)
1-3
王素娟
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
Diversity and Performance
Feng Li, Venky Nagar
Management Science 59(3), pp. 529–544
Corporate governance
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.
Methodology - Empirical Research
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
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
Worst-Case Value at Risk
of Nonlinear Portfolios
Steve Zymler, Daniel Kuhn, Berç Rustem
Management Science 59(1), pp. 172–188
Risk management
Motivation and Contribution
VAR
WVAR
WPVaR
portfolios containing long
positions in European
options expiring
at the end of the
investment horizon,
non-convex,
fails to satisfy the subadditivity property of coherent
requires joint probability distribution of the asset returns
it tends to be overpessimistic and thus may result in
undesirable portfolio allocations when portfolios containing
derivatives
WQVaR
portfolios containing long
and/or short positions in
European and/or exotic
options expiring beyond
the investment horizon
Contribution
The insight for management: Advances in portfolio optimization with
considerable downside risk allow for more tractable portfolio
optimization.
updating of old problem
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
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.
Methodology
risk-presentation modes
(i) numerical descriptions,
(ii) experience sampling,
(iii) graphical displays,
(iv) combination of these
formats in the “risk tool.”
One’s Investment Risk Appetite
(i) risk-taking behavior,
(ii) 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
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
Solving Constrained Consumption–Investment
Problems 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
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.
Contribution
The authors propose a numerical procedure that Combines the
abstract idea of artificial, unconstrained complete markets, wellknown 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
Market Crashes, Correlated Illiquidity, and
Portfolio Choice
Hong Liu, Mark Loewenstein
Management Science 59(3), pp. 715–732
Capital asset pricing and portfolio theory
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.
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.
Intertemporal CAPM with Conditioning Variables
Paulo Maio
Management Science 59(1), pp. 122–141
Capital asset pricing and portfolio theory
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.
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
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
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.
Conclusion and 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