Industry Expertise (1)
Areas of Expertise (3)
Amundi Smith Breeden Distinguished Paper Prize
2017 Amundi Smith Breeden Distinguished Paper Prize for ”Retail ﬁnancial advice: Does one size ﬁt all?”
TIAA-CREF Paul A. Samuelson Award
Special mention as ﬁnalist for the 2015 TIAA-CREF Paul A. Samuelson Award for “Stock market returns and annuitization”
CFA Society Toronto & Hillsdale Canadian Investment Research Award
2015 CFA Society Toronto & Hillsdale Canadian Investment Research Award for “Retail ﬁnancial advice: Does one size ﬁt all?”
Northern Finance Association Best Paper in Capital Markets Award
2010 Northern Finance Association Best Paper in Capital Markets Award for “Stock market returns and annuitization”
University of Salento: Ph.D., Management 2006
UCLA Anderson School of Management: Post-doctoral Fellowship 2010
Media Appearances (4)
What Good Is a Financial Advisor?
Kellogg Insight online
The financial journey to retirement may feel more like a labyrinth than a well-marked path. Is paying into your employer’s 401k plan enough? How do you pick the perfect mutual fund? Will you be able to retire young enough to enjoy time with the grandkids?
Does Your Mindset Affect How You Make Retirement Income Decisions?
Why do we as humans need to be coached in our behavior? Evolution has not designed us to be effective long-term investors, but rather to seek to avoid short-term dangers. The fields of behavioral finance and behavioral economics have uncovered various biases humans have which are great for day-to-day survival, but somewhat maladaptive for long-term investing.
Putting a number on the value of financial advice: 3%
The Globe and Mail online
Attention, financial advisers: I have a modest proposal for you.
The inspiration is a new report from mutual fund giant Vanguard Group Inc. that attempts to put a number on the value of financial counsel. The report claims that state-of-the-art professional advice can add "about 3 per cent" a year in net returns to the client.
Make portfolio-building a priority to justify investment adviser fees
The Globe and Mail online
A new study says investment advice isn't worth the cost.
So, make sure that financial planning is part of the relationship you have with your adviser as well as portfolio-building with funds or stocks. "We conclude that, for the average investor, investment advice alone does not justify the fees paid to advisers," a team of four finance professors from universities in Canada and the United States say in a paper titled Retail Financial Advice: Does One Size Fit All? (read the study here).
Foerster, S., Linnainmaa, J., Melzer, B., Previtero, A.
Using unique data on Canadian households, we show that financial advisors exert substantial influence over their clients' asset allocation, but provide limited customization. Advisor fixed effects explain considerably more variation in portfolio risk and home bias than a broad set of investor attributes that includes risk tolerance, age, investment horizon, and financial sophistication. Advisor effects remain important even when controlling flexibly for unobserved heterogeneity through investor fixed effects. An advisor's own asset allocation strongly predicts the allocations chosen on clients' behalf. This one‐size‐fits‐all advice does not come cheap: advised portfolios cost 2.5% per year, or 1.5% more than life cycle funds.
Henrik Cronqvist Alessandro Previtero Stephan Siegel Roderick E. White
We find that differences in individuals' prenatal environments explain heterogeneity in financial decisions later in life. An exogenous increase in exposure to prenatal testosterone is associated with the masculinization of financial behavior, specifically with elevated risk taking and trading in adulthood. We also examine birth weight. Those with higher birth weight are more likely to participate in the stock market, whereas those with lower birth weight tend to prefer portfolios with higher volatility and skewness, consistent with compensatory behavior. Our results contribute to the understanding of how the prenatal environment shapes an individual's behavior in financial markets later in life.
I investigate the strong negative relation between recent stock returns and the annuitization of retirement savings using a novel data set with over 100,000 actual payout decisions. After controlling for several standard explanations (e.g., wealth effects), I present evidence supporting naïve beliefs and extrapolation from past returns. The effect of recent returns on annuitization dramatically increases with age, confirming that the elderly rely most heavily on recent information. My results provide insights into how beliefs are formed in old age and have implications for the design of public policies seeking to promote annuitization.
Shlomo Benartzi, Alessandro Previtero, Richard H Thaler
In his Nobel Prize acceptance speech given in 1985, Franco Modigliani drew attention to the "annuitization puzzle": that annuity contracts, other than pensions through group insurance, are extremely rare. Rational choice theory predicts that households will find annuities attractive at the onset of retirement because they address the risk of outliving one's income, but in fact, relatively few of those facing retirement choose to annuitize a substantial portion of their wealth. There is now a substantial literature on the behavioral economics of retirement saving, which has stressed that both behavioral and institutional factors play an important role in determining a household's saving accumulations. Self-control problems, inertia, and a lack of financial sophistication inhibit some households from providing an adequate retirement nest egg. However, interventions such as automatic enrollment and automatic escalation of saving over time as wages rise (the "save more tomorrow" plan) have shown success in overcoming these obstacles. We will show that the same behavioral and institutional factors that help explain savings behavior are also important in understanding 1) how families handle the process of decumulation once retirement commences and 2) why there seems to be so little demand to annuitize wealth at retirement.