In 1998, Sweden introduced a second tier of mandatory individual accounts in the public pension system. This paper examines investment choice in the Swedish individual account scheme focusing on two aspects of the investment decision: Do workers with high risk in their human capital diversify their overall portfolio by investing their pension funds in low-risk funds? And to what extent do participants exhibit "home bias" and invest in Swedish assets? Two pieces of evidence support rational investment decisions. First, we establish a positive relationship between income and the level of risk. Second, married participants appear to pool their risks. On the other hand, the results show that participants at the bottom of the income distribution take on as much risk as those at the top, indicating that they are not diversifying their overall portfolio. Finally, participants employed in sectors that are affected by foreign competition are less likely to diversify their portfolios and invest in foreign assets compared to the public sector. Instead, these workers exhibit "home bias" in their investments.
This paper focuses on the robust efficient method of moments (REMM) estimation of a general parametric stationary process and proposes a broad framework for constructing REMM statistics in this context. This extends the application field of robust statistics to very general time series settings, including situations where the structural and the auxiliary models in the efficient method of moments (EMM) estimating equations are different, models with latent nonlinear dynamics, and models where no closed form expressions for the robust pseudoscore of the given EMM auxiliary model are available. We characterize the local robustness properties of EMM estimators for time series by computing the corresponding influence functions and propose two versions of a REMM estimator with bounded influence function. Two algorithms by which the two versions of a REMM estimator can be implemented are presented. We then show by Monte Carlo simulation that our REMM estimators are very successful in controlling for the asymptotic bias under model misspecification while maintaining a high efficiency under the ideal structural model.
We investigate the damage to real-sector investment spending and corporate financing activities triggered by the failure of three major investment banks during the 2007-09 financial crisis. We find that corporations characterized by pre-crisis corporate investment banking relationships with troubled investment banks exhibit significantly lower post-crisis investment spending activity and securities issuance compared to corporations that were not affiliated with the troubled institutions. The effect varies systematically with the nature and strength of the investment banking relationship. Our results are robust with respect to various modifications and extensions of our empirical design (including a matched control sample) and generally inconsistent with alternative explanations unrelated to investment banking relationships.
Do securities analysts serve as effective external monitors, or do they pressure managers to focus on short-term performance? To explore this question, we study how securities analysts influence managers' use of different types of earnings management. To isolate causality, we employ a quasi-experiment that exploits exogenous reductions in stock-level coverage resulting from brokerage house mergers. We find that managers respond to a loss of coverage by decreasing real activities manipulation, while increasing their use of accrual-based earnings management. These effects are attributable to firms with low initial analyst coverage and also vary systematically with proxies for the costs of earnings management. Our causal evidence suggests that managers use real activities manipulation to enhance short-term performance and meet analyst forecasts, effects that are not uncovered when focusing solely on accrual-based earnings management.
