Benedict S. K. Koh

Disaggregating Activities of Daily Living Limitations for Predicting Nursing Home Admission

OBJECTIVE To examine whether disaggregated activities of daily living (ADL) limitations better predict the risk of nursing home admission compared to conventionally used ADL disability counts. DATA SOURCES We used panel data from the Health and Retirement Study (HRS) for years 1998-2010. The HRS is a nationally representative survey of adults older than 50 years (n = 18,801). STUDY DESIGN We fitted Cox regressions in a continuous time survival model with age at first nursing home admission as the outcome. Time-varying ADL disability types were the key explanatory variables. PRINCIPAL FINDINGS Of the six ADL limitations, bathing difficulty emerged as the strongest predictor of subsequent nursing home placement across cohorts. Eating and dressing limitations were also influential in driving admissions among more recent cohorts. Using simple ADL counts for analysis yielded similar adjusted R(2) s; however, the amount of explained variance doubled when we allowed the ADL disability measures to time-vary rather than remain static. CONCLUSIONS Looking beyond simple ADL counts can provide health professionals insights into which specific disability types trigger long-term nursing home use. Functional disabilities measured closer in time carry more prognostic power than static measures.

Corporate Divestitures and Spinoffs in Singapore

This paper discusses the different forms of corporate divestitures, the motives for this corporate activity and the empirical findings about their economic outcomes. A sample of corporate divestitures is also used to identify the main motivations in the Singapore context. We conclude that divestitures are carried out to achieve operational efficiency, gain incremental profitability and liquidity. Using share price data around the event-dates, we show that announcements of divestitures generally lead to significant increases in the returns of the parent company. The positive abnormal returns are related to the relative size of the divestitures and the computed accounting gains. Overall, corporate divestiture is a value-increasing activity for Singapore companies.

Investment Patterns in Singapore's Central Provident Fund System

Rising elderly life expectancies imply the need to accumulate sufficient savings for retirement. This paper investigates the role of recent changes in the investment menu in helping workers grow their saving in the Singaporean Central Provident Fund (CPF) system. Our research explores the investment patterns of CPF participants and articulates their implications for policymakers. We find that most investors use their money for housing purchase and default the remainder to the CPF investment pool. The bulk of non-housing saving sits uninvested in bank accounts paying a low return. A fraction of workers does elect outside investment products, with high-income earners and males tending to take more risk than low-income earners and females. Since workers who default their money to the CPF fund receive a guaranteed 2.5% return on the Ordinary Account and 4% on the Special Account, hurdle rates for money market and equity funds are substantial. These high hurdle rates help explain why few CPF account holders invest outside the default government investment pool, though inertia probably explains why many employees let their funds sit in bank accounts earning low interest rates.

A Risk and Complexity Rating Framework for Investment Products

Many investors who bought such investments as Lehman Brothers’ minibonds did not understand the products’ complicated features. This fact suggests that if the inherent risk and complexity of products’ structure are not clearly understood by investors, they will be unable to make informed decisions. Some practitioners have recently attempted to calibrate product complexity. The authors propose a framework for classifying investment product risk and complexity separately with a list of factors that contribute to these attributes. They demonstrate the framework’s simplicity and usefulness in helping investors make informed decisions, showing that it can be used to calibrate a variety of investment products. Investors often do not have a clear understanding of the complicated features embedded in complex investment products. In the aftermath of the 2008 global financial crisis, regulators have increasingly looked for various ways to provide such information, motivated by the need to enhance consumer protection. Although risk indicators are well developed and widely adopted, the financial industry as a whole does not have a common methodology to calibrate the complexity of investment products. In this article, we propose a simple, integrated framework to classify both the risk and the complexity of investment products. Risk is decomposed into six main factors: volatility, liquidity, credit rating, duration, leverage, and the degree of diversification. Product complexity is measured by five basic factors: the number of structural layers, the expansiveness of derivatives used, the availability and use of known valuation models, the number of scenarios determining return outcomes, and the transparency/ease of understanding. We simulated and stress tested the proposed framework with a range of weights for the chosen factors and found it to be technically robust. The framework can be used by industry players to enhance product transparency as well as to offer their clients suitable products, appropriately classified by risk and complexity. Editor’s note: This article was reviewed and accepted by Executive Editor Robert Litterman.