Angeline M. Lavin

Empirical Tests of the Fundamental-Value Hypothesis in Land Markets

The land-price boom of the 1970s followed by the bust of the 1980s generated considerable interest in the determination of land prices and the study of whether those prices reflect fundamental value. In this article, three techniques are used to examine the fundamental-value hypothesis in Iowa and Nebraska agricultural land markets. Duration dependence tests indicate that land markets are not affected by rational expectations bubbles. Conversely, Markov chain and time-reversibility tests suggest that land prices depart from fundamental value due to the existence of nonrandom price changes and asymmetric land price patterns. The results of this research should be viewed as a complement to the existing body of knowledge in our quest to enhance our understanding of agricultural land-price movements.

Do as I Do, Not as I Say: Assessing Outcomes When Students Think Like Economists

The authors measured the pedagogical value of sharing with students what economists do and how they do it. Ostensibly, thinking and researching like economists will transform students into better and more engaged learners as well as provide instructors with effective assessment tools. One way to bring students closer to what economists do is to implement an empirical economics research curriculum that teaches students how to access, chart, and interpret macroeconomic data; search and access peer-reviewed journal articles; and formulate, in writing, positions on economic issues. The authors assess student results with respect to an empirical research curriculum that they designed and introduced in a money and banking course at South Dakota State University.

Modern Portfolio Optimization: A Practical Approach Using an Excel Solver Single-Index Model

Modern investors face a daunting challenge when attempting to determine how to efficiently optimize their portfolios. Often these investors do not have access to portfolio optimization tools or the background to understand mathematical models that provide insight into efficient portfolio management. While Modern Portfolio Theory (MPT) provides excellent insights into which assets should be included in an investors optimal portfolio, understanding the underlying statistical techniques in portfolio optimization presents a rigorous challenge. Even the simplest of methods requires a substantial knowledge of statistical concepts. The investors knowledge of the theoretical basis of MPT presents a conceptual constraint on his/her ability to understand these required underlying constructs in determining which asset investment strategy will optimize his/her portfolio. This article presents a practical solution to the strategic asset allocation problem that investors face when attempting to construct an optimal portfolio from a given set of available mutual funds. The optimization model, developed in Excel, uses capital asset pricing model (CAPM) principles to determine security (fund) valuation and the Sharpe Ratio to identify an optimal or efficient combination of the available funds.

Predictable pricing errors and fair value pricing of US‐based international mutual funds

Fair value pricing is a critical issue for mutual funds with international market exposure because trading in the underlying foreign securities is not synchronous with US market trading. Using a sample of Japanese open‐end mutual funds that trade in the USA, this paper explores the potential for exploitation of common mutual fund pricing practices and identifies much larger pricing errors than previously reported. A simple, objective solution to the fair value pricing quandary is proposed. The solution, based on foreign exchange‐traded funds and the S&P 500, provides a timely, objective pricing alternative that is less exploitable than current mutual fund pricing practices.

The Effect of Time-Series and Cross-Sectional Heterogeneity on Panel Unit Root Test Power

Panel unit root tests represent a significant advancement in addressing the low power of unit root tests by exploiting cross-sectional and time-series information. In this article we employ Monte Carlo techniques to quantify the power improvements due to cross-sectional information and assess test sensitivity to heterogeneous data. Pooling the data alleviates negative effects of slowly adjusting equilibrium relations as well as persistence in the forcing variable. However, if the panel contains a mixture of unit root and stationary series, the power of the test decreases substantially and the interpretation of the results becomes tenuous. The Southern Finance Association and the Southwestern Finance Association.

Passive versus Optimized Investing in Retirement Plan Portfolios

This article uses portfolios of Vanguard index funds to study the optimal portfolio allocation strategy for long-term investors who are saving for retirement. The optimization, conducted using both a single-index-hybrid model (SIHM) and the Markowitz–Sharpe optimization method, suggests that in the long run, an optimized allocation strategy will yield cumulative returns equivalent to those of a passive allocation strategy with significantly less risk. In addition, the optimized allocation strategy achieves the favorable risk and reward profile using fewer funds than the passive strategy.

The CCM model: a stock valuation tool for a student managed investment fund

Purpose - The purpose of this paper is to develop and test a model that can be used to help students learn the investment analysis process and accurately identify good and bad investment opportunities. Design/methodology/approach - The model tested in this research was developed by a former member of the student managed investment fund Coyote Capital Management at the University of South Dakota. The goal of this project was to refine that original model and test it using historical data from a sample of companies during both bull and bear market periods. Findings - During the bull market period (2004-2006), 81 per cent of the models recommendations were correct, and during the 2007-2009 bear market period, approximately 66 per cent of the models recommends were correct. Originality/value - While following the models recommendations could potentially produce returns well above those of the market in the best case scenario and returns in line with the market in the worst case scenario, there are many factors that should go into making an investment decision. This model can be useful as an item in the investors tool kit, and it has the potential to help students better understand the process of evaluating an investment opportunity.