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This paper considers investment decision making when returns have a multivariate gamma distribution which has the particular correlation structure of Furman’s ladder gamma distribution. With an exponential utility function It is shown that there is a subset of the candidate investment opportunities to which investment should be allocated. This subset can be readily identified in a two step process that results in a list of candidate investments that is ranked in sequence of decreasing risk. The last investment opportunity on this list will be no risk cash. Investments are then selected from this list in sequence up to a cutoff point that depends on the investors capital and degree of risk aversion. If capital and degree of risk aversion are sufficiently large so that it is optimal to allocate some to no risk cash, then the capital allocated to each risky investment is a constant fraction of the total capital allocated to risky investments irrespective of how risk averse is the investor.

This paper examines the causes of the exceptionally marked fall in non-construction investment in Italy since 2007. In terms of sector-specific contributions, non-financial private services accounted for most of the decline in the aggregate investment rate, but the reallocation of value added away from industry was also a drag on investment. In concordance with survey findings, an aggregate econometric model of investment indicates that even during the recent double recession the most important driver of capital accumulation was demand conditions. Regarding other determinants of investment it is found that: (i) the user cost of capital had a substantial negative impact in the acute phases of the sovereign debt crisis, but since 2013 its contribution has turned positive; (ii) the constraints imposed by tight credit supply conditions were particularly severe in 2009 and 2012; (iii) uncertainty provided a sizeable drag on investment growth not only during the global financial crisis but also in 2013–2014, being one of the main factors behind the delayed recovery of the Italian economy from the sovereign debt crisis. The significance of these determinants of investment is confirmed also by a disaggregated panel data analysis for thirteen manufacturing branches.

Art, along with other “treasure assets,” has become a central object for investment opportunities. Investment return studies using hedonic and resale price regressions on different artistic periods and styles produce estimates of varying rates of return, predominately low rates with high standard deviations. The present study employs a new sample of American art sold at auction between 1987 and 2011—art created before 1950 by 33 artists born prior to 1900. Our study, unlike those that preceded it, considers works that are no-sales (those “bought-in” for failing to sell at auction at or above a predetermined and negotiated minimum price), in addition to full transaction costs—buyers and sellers premia on hammer prices. We conclude that investment return calculations are biased upward and may be negative when these factors are considered and that the “consumption utility” of art may be higher than previously thought. However, using a variant of the capital asset pricing model, we find that investment in early American art may still be desirable in a diversified portfolio of assets for when the price of stock assets falls, the price of art does not fall in the same proportion.

The “Great Recession” of 2007–2009 (Rampell 2009) had a devastating impact on personal finances, causing households to retrench by limiting spending and reducing indebtedness. One positive outcome—evaluated by some—has been a rise in the widely cited “personal saving rate” from historic lows set in the middle of the decade. This paper evaluates the reasons for the rebound in the saving rate by undertaking a new examination of the determinants of household saving. Extending previous work and making use of data inclusive of the turbulent 2000s decade, the analysis finds support for an inverse relationship between the personal saving rate and the return to home equity. New in the research is a similar finding of an inverse relationship between the personal saving rate and the return to household investment in human capital. The results are used to make alternative forecasts of the personal saving rate through 2020. The path of the household human capital return is found to be a key determinant of these forecasts.

The main purpose of this paper is to investigate whether capital investment can affect stock price momentum. We provide empirical evidence that momentum strategies tend to be more profitable for stocks with large capital investment or investment changes. We present a simple explanation for our empirical results and show that our finding is consistent with the behavioral finance theory that characterizes investors’ increased psychological bias and the more limited arbitrage opportunity when the estimation of firm value becomes more difficult or less accurate.

To date, investment risk has largely been the Cinderella of Defined Contribution (DC) investment default design – at least in the growth phase of the journey – with its more glamorous sister, investment return, tending to steal the limelight. But all this has changed in the wake of the recent financial market turmoil. Investment risk is now fast becoming the belle of the ball. Part of the reason behind this relative neglect of investment risk is the fact that it has not really been fully understood or defined in an appropriate way for DC savings. Taking a long-term, perhaps over 30–40 years, view and modelling the level and variability of outcomes has generally always suggested that the price of managing risk has always been too great for the benefit that it brings. Lifestyling has traditionally been the medicine for dealing with investment risk, which is fine in the run up to retirement, although lifestyle programmes and glide-path designs can be greatly improved where the additional complexity can outweigh the operational cost that it brings. Traditionally, however, lifestyling has done little to manage risk for those members who are not in this pre-retirement phase of their life. In this short opinion piece, we go back to basics and redefine investment risk in a DC context, suggesting new DC-specific measures to help us get a handle on investment risk, and exploring how DC plan fiduciaries can assess how much risk should be built into a default investment programme and how a defaulting member's exposure to that risk can be more effectively managed over their DC journey. We hypothecate that DC plan fiduciaries have a vital role to play and that they need to subtly, but quite fundamentally change the way that they approach the setting of their default investment strategy – focusing more on understanding their membership, its retirement outcome objectives, its investment return needs and its investment risk tolerances, as well as focusing more on managing the default programme more proactively against some clear strategic objectives.

The countries of Central and Eastern Europe experienced a rapid increase of return to education with the advent of the transition. We look at the dynamics of wage premiums in Croatia and estimate how much the return to education has changed between 1996 and 2004 on the basis of labor force survey data. We also extend the paper in order to address additional features of the wage structure, such as non-linearities in the return to education associated with attainment of credentials. We find that contrary to most transition countries, premiums for education in Croatia began to grow only after the mid 1990s. However, by 2004, they reached the levels of premiums found in other transition countries and advanced market economies, thus creating market incentives for investment in education. We also find that major part of this higher rate of return came through higher return to credentials.

This paper presents a two-period human capital investment model, which is used to study the optimal investment decisions of credit-constrained married immigrants relative to single immigrants and native couples facing a perfect capital market. The model predicts that: (1) The comparative advantage in investment in local skills of one of the spouses may emerge from his/her higher growth rate of imported human capital. (2) The optimal investment of each spouse is non-increasing in the level of imported human capital of the spouse with the comparative advantage in investment, while it is non-decreasing in the level of imported human capital of the other spouse. (3) When two immigrants get married, the spouse with the comparative advantage in investment invests more than when he/she was single whereas the other spouse invests less.

One common rationale supporting public financing programs for small firms is that initial public investment creates incentives for follow-on private investment. However, there does not appear to be a unified statement in the literature describing how initial public investment creates incentives for follow-on private investment. Focusing on external private investors, we use a two-stage net present value model to identify four effects from initial public investment on the private decision for follow-on investment. Our empirical analysis uses a sample of non-venture backed firms entering the SBIR program to examine how reduced risk, the number of SBIR awards, and size of initial public investment influence the likelihood of follow-on venture capital investment. We find the probability of follow-on venture capital investment is more likely when firms reach Phase II of the program, is less likely as firms win multiple Phase I and Phase II awards, and is more likely as the size of initial public investment in Phase I increases.

I examine the effects of mortality decline on fertility and human capital investment decision of parents taking into account the uncertainty about child survival. I propose a model, where parents decide on their fertility before the uncertainty is realized, but they choose to invest only in human capital of their surviving children. The model implies a positive relationship between mortality and fertility and a negative one between mortality and educational investment. It has been argued elsewhere that as, in reality, most of the mortality decline occurred in infancy, it should not affect the human capital investment decision, which comes later in life. Thus, increased survival chances should not promote growth by raising the human capital investment. This paper argues the contrary and proposes a mechanism where mortality decline at any age before the teen years can promote growth by raising human capital investment regardless of the timing of the educational investment.

The rate of return on capital is a key parameter in pension reform policy making. While evaluating pension reform, the method Feldstein proposed to measure the rate of return on capital is widely adopted. Here we calculate the rate of return on capital in China by this method. The calculation demonstrates that the rate of return on all the industrial enterprises is around 6.5 percent from 1996 to 2000, and the average rate of return on state-owned industrial enterprises is lower than the above figure by 1.5 percent during the same period. Finally, we draw a conclusion that the rate of return ranging from 5 to 7 percent is appropriate for the pension reform in China.

This article analyzes R & D investment decisions in an asymmetrical case. The investment decisions share three important characteristics. First, the investment is completely irreversible. Second, there are two kinds of uncertainties over the future returns from the investment and over technology in R & D process, respectively. Third, there is strategic competition in the asymmetrical case. This article presents the optimal investment threshold values and the optimal investment rule of high-efficient firm (leader), and shows that the investment threshold values are reduced by competition of two firms. Finally, the mixed investment strategies for two firms, the probability that each firm separately exercises the option to invest, and the probability that two firms simultaneously exercise the option are given in the paper.

Marketers are being assailed from all quarters with respect to accountability for their initiatives. But virtually all the financial measures being used, from return on investment (ROI) to return on marketing investment (ROMI), have a fatal limitation: each assumes there is an infinite supply of customers and prospects. In fact, however, customers and prospects are limited in number. They are a scarce productive resource — even scarcer than capital for most businesses. No business can create value without a customer, and different customers create value at different rates. If marketing's job is to create the maximum possible value for a business, then it should employ a metric of success that gauges how much value is created per customer available, rather than how much value is created per dollar invested. Return on Customer, or ROC, is a metric designed for that purpose. ROC incorporates not just the profit generated by a customer in the current period, but also any positive or negative changes in the customer's lifetime value during the period. A firm relying on ROC will actually make different — and more managerially and financially beneficial — decisions than it would make by relying solely on ROI. ROC should be maximised from among the alternatives that exceed a firm's investment hurdle rate. To do this, a firm must earn the trust of its customers.

Some access pricing regimes derive allowable cash flows to provide investors with an expectation of receiving a required real pre-(company) tax rate of return, with compensation for inflation built in via the allowable return of capital (depreciation). The required real pre-tax return is derived from nominal (or real) post-tax required returns. Techniques commonly used to transform post-tax into real pre-tax returns are biased, because they fail to capture accurately the characteristics of tax depreciation allowances. There is no general solution to this “transformation problem”, but alternative approaches can achieve the benefits prompting the use of a “real pre-tax” approach without suffering from this problem

This paper derives criteria for worthwhile public investment in an overlapping generations model of an “almost small” open economy- an economy with access to external funding at a given interest rate, but with some influence over its temporal terms of trade. If the economy is dynamically efficient (i.e. the interest rate exceeds the growth rate), committed to free trade, public investment is debt financed and lump sum taxes are feasible, two results follow. First, the “social opportunity cost of public funds” will exceed the government's borrowing rate because of the adverse effect of government borrowing on the terms of trade. Second, the marginal rate of return on worthwhile public investment will be greater than the social opportunity cost of public funds if public and private investment are complements (substitutes) and the tax on capital is below (above) the rate that minimizes the steady state burden of servicing the debt.

Estimates from a directional output distance function are used to construct a risk/return frontier that defines the best-practice management technology for Real Estate Investment Trusts (REITs). We model REIT performance as a production process in which each REIT produces a desirable output (return) and an undesirable output (risk) using inputs of managerial effort and financial capital. The results suggest that ignoring the effects of risk yields a management technology that is significantly different from one that incorporates risk. In addition, market valuation is inversely related to inefficiency and directly related to leverage.

Maintenance consumption is an expense recovered in product prices, yet also a source of taste satisfaction which must be exhausted, rather than reinvested, from the capital affording it. This riddle is solved in the ‘duplication rules’: the cost of maintenance consumption is recovered in pay and prices, but an equal flow is exhausted from the human capital of the worker earning the pay. The rules impact tradition in several ways. If output is defined in principle as value added, then it cannot also be described as consumption plus net investment without double-counting the maintenance consumption recovered in prices. Also rate of return in the stationary state is not zero, but is the rate sufficient to offset the exhaustion of individual human capital. The rules lead to new insights into economic return, and support an argument that all growth at the scale of closure is due to productivity gain rather than to thrift.

Investment is important part of development economic, especially on increase of economic growth. Through investment, various of production facilities will be provide, thus will give optimally production output and value added, as a result can improve the economic growth. Investment activities can be done by two main sectors, government and private. Majority of government investment commonly to finance physical and non- physical development that could not be conducted by society. Lack of capital in government sector influence low of encourage on physical infrastructure as driving of business and economic activities. That condition will impact on private investment. This study will explain the effect of government investment and another economic variables, such as economic growth, investment credit, interest rate, inflation and exchange rate, and the influence of private investment on economic growth in Indonesia Keywords—Engineering-management-Economics, Determinant of private investment, Economic growth

The rate of return earned on a deposit can depend on its term, the amount of money invested in it, or both. Most banks, for example, offer a higher interest rate for longer term deposits. This implies that if one individual has capital available for investment now, but needs it in the next period, whereas the opposite holds for another individual, then they can both benefit from cooperation since it allows them to invest in a longer term deposit. A similar situation arises when the rate of return on a deposit depends on the amount of capital invested in it. Although the benefits of such cooperative behavior may seem obvious to all individuals, the actual participation of an individual depends on what part of the revenues he eventually receives. The allocation of the jointly earned benefits to the investors thus plays an important part in the stability of the cooperation. This paper provides a game theoretical analysis of this allocation problem. Several classes of corresponding deposit games are introduced. For each class, necessary conditions for a nonempty core are provided, and allocation rules that yield core-allocations are examined.

Models of the functioning of insurance companies are suggested, when the free capital increases from interest at a certain rate. The basic characteristics of the capital of a company are studied in the stationary regime.

We examine the labor market performance of return migrants using the Hungarian Household Panel Survey. Two distinct selection issues are considered in the estimation of the earnings equation; we implement a natural method using MLE. The result that there is a "premium" to work experience abroad for women is robust across the models we considered. For men, the return to working abroad is not generally significant.

While discount rates of listed companies can be readily estimated using "betas" and the Capital Asset Pricing Model, the same is not true for small business. Entrepreneurs often have to rely on subjective assessments of the financial viability of their business ventures. This paper suggests an alternative to estimate the costs of capital for small businesses. Costs of capital are derived from the probability of success for similar business. These required rates of return can be used as minimum hurdle rates to assess the viability and profitability of the business under consideration. Since risk neutrality is assumed of investors in this approach, the costs of capital established should only be regarded as minimum returns required by risk-averse investors. Therefore, this suggested approach attempts to provide a refined "rule-of-thumb" which may be of value to small business entrepreneurs and financiers, especially when detailed accounting and financial data of similar business are not readily available.

The paper proposes an intertemporal equilibrium model that highlights the interdependence between aggregate investment and the degree of product differentiation with free entry of monopolistic producers. An investment externality is identified that results in underaccumulation of capital in the decentralized market equilibrium. Some form of investment promotion is called for. The paper compares the effectiveness of a general investment tax credit and an ad valorem output subsidy with policies that favor smaller business size. It is also shown that the complementarity among individual investments creates a potentially powerful investment multiplier.

The main purpose of this paper is to investigate the optimal investment decision of the firm with a vintage production function. First, the optimal conditions for the investment and replacement permitting jumps in the state variables are derived. Second the effects of exogenous parameters on investment are examined and the following new results are obtained: (1) whether a rise in the current money wage increases or decreases investment depends crucially on the time profile of the existing plants; (2) a rise in the rate of technical progress reduces investment.

In this paper, we derive a necessary and sufficient condition for the existence of a nonnegative equilibrium price vector in a non-homogeneous capital market consisting of investors whose measure of risk may not be the same. The eigenvalue structure of a matrix which is constructed from the investor’s initial assets and the requested rate of return play an important role in this procedure. Also we present some economic implications of these conditions. In particular, we show that if investors pursue too much return then the market becomes unstable.

This analysis provides theoretical support for the use of residual income. Economic theory states that capital investment should maximize the present value of incremental cash flow. When a firm is decentralized, coordinating the necessary information to determine optimal investment in the short run may be impossible. But the residual income maximizing choice can be coordinated using a simple transfer-pricing system. Under appropriate capitalization and depreciation policies, the residual-income maximization policy leads the firm to make suboptimal short-run investment decisions, yet these decisions still lead the firm to its long-run, presentvalue-maximizing capacity level.

I argue that the West should lend money to the former Soviet Union and Eastern Europe (FSUEE) to prevent excessive deterioration of its human capital stock. Such loans can improve the recipient countries' welfare by allowing them to enjoy the long-run benefits of a large human capital stock without incurring the costs of maintaining these stocks through lean economic times. The West can receive a fully competitive rate of return on these loans, and future foreign investors will be able to earn high rates of return by supplying physical capital to a newly stabilized FSUEE with abundant human capital.

This article uses recent measures of the risk and return to investment in housing to estimate the effects of including a single family home in the investor portolio. We estimate the expected return and standard deviation of that return, as well as its correlation with other major investment classes.

This paper examines the widely-held notion that the regulatory approach to setting earnings equalizes the accounting and internal rates of return, and that this condition holds for any depreciation profile. The evidence suggests that the practical usefulness of this proposition for policy-making may be quite limited. This paper also examines the underlying premise—that, because of its relative constancy over time, the regulated rate of return must equal the internal rate of return—and finds that contrary to earlier suggestions, this result does not always hold in the multi-asset case.

In a recent articlePazner, Razin [1975] concluded that in the case of uncertainty in the cost of capital the expected present value criterion turns out to be more investment promoting than the expected future value criterion. In this paper it is shown that this proposition in general is not conclusive, but holds true if there is only one sign reversal in the stream of the investment's payments and the future costs of capital are independent random variables or if the project is involved with one initial expenditure and only one posterior receipt where the costs of capital different periods are allowed to be correlated.

American families have been changing the way they allocate their investment resources. These changes have raised questions concerning the types of investment decisions families make. The objective of this research was to gain a better understanding of the types of investment trade-offs households made between financial, physical, and human capital assets. This was done by estimating a short-run stock-adjustment model of family investments using panel data from the early 1970's. From examining the empirical results, it appeared that during this historical period, choices about a husband's human capital investment were generally related to a household's physical and financial asset acquisition. In contrast, choices regarding the wife's human capital investment appeared not to be related to any of the more traditional household investment options. The implications of this study for increasing understanding of current household investment patterns are discussed in the concluding section of the paper.

We have demonstrated that, contrary to the spirit of much of the thinking based on the work of Averch and Johnson, it need not be true that rate-of-return regulation entices a firm to over-invest in productive capital. For a simple dynamic model featuring an imperfect capital market, we find that it may be optimal for the regulated firm to invest at every instant of time at a rate less than its unregulated counterpart. Our findings demonstrate once again the strong dependence on model specifications of the conclusions one draws in the study of regulatory problems.

This paper explores the role of initial investment amount in the evaluation of investment opportunities. A new “Capital Integration Hypothesis” which takes into account the initial investment amount is introduced, and the family of utility functions it engenders are discussed. Initial investment risk aversion is defined as the behavior implied by certain of these functions, and it is shown that a quadratic utility function falls into this class.

WHETHER we like it or not a new order is coming. By this I do not mean the curious political philosophy paraded under that name but the changes brought about by the strong acid solvent of a great war. The Napoleonic wars spread throughout Europe the principles of the French Revolution ; Alexander left Greek culture behind in India. The very violence of this present conflict will eat away the dry rot of many an old privilege and outworn allegiance. Mankind learns quicker to-day ; the higher intelligence quotient of the average man gives a better spring-board for the start off. While admittedly the human animal would seem slow at its lessons it is not altogether a dullard, and war, as I have said, acts as a powerful tonic. Return to Reason ! An Essay in Political Diagnosis. By Geoffrey Bourne. (Hutchinson's Booklover's Library.) Pp. 64. (London, New York and Melbourne: Hutchinson and Co. (Publishers), Ltd., 1942.) 2s. 6d. net.