Yao, Rui conference presentations (MU)
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Collected created February 2, 2018.
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Item The role of market returns in retirement decision-making(2012) Yao, Rui; Park, Eric; Personal Financial PlanningAbstract only. Abstract: This study utilizes nine interview waves of the Health and Retirement Study and a multilevel discrete-time survival analysis to investigate the effect of market returns on individual elective retirement decisions. Individuals who retire at a market peak have an increased risk of shortening the longevity of their retirement income. Unfortunately, they were found to be more likely to retire when market returns are high, indicating the influence of a projection bias on the timing of elective retirement. Having experienced the recent market crash and the housing slump and facing the uncertain future of Social Security, baby boomers are starting to exit the workforce. Acting on projection bias would expose their retirement portfolio to a higher probability of experiencing an early negative hit and outliving their retirement resources. Researchers, employers, financial educators and financial practitioners should help pre-retirees overcome the stock market's influence on their decision-making to avoid the negative effect of market sequencing on their retirement wealth.Item The impact of financial planning on portfolio performance(2014) Lei, Shan; Yao, Rui; Personal Financial PlanningAbstract only. Nowadays, individuals and households are increasingly responsible for their own wealth accumulation and preservation while the financial market are growing with complexity (Ho, Palacios, and Stoll 2012). However, empirical studies have found that most of the individuals and households lack adequate financial knowledge and skills to make the appropriate saving and investment decisions facing complex of financial market (Lusardi and Mitchell, 2006; Lusardi and Mitchell,2008; Mitchell and Curto ,2010). Economic theory indicates that individuals and households are utility maximizers. They will make the trade-off between the costs and benefits to make the choice to help them realize this goal. Therefore, in concept, due to the opportunity cost, it may be more efficient for most individuals and households to get professional assistance in financial decision making. However, in reality, few individuals and households turned to the professional support. The 2009 National Consumer Survey conducted found two thirds of the respondents of the survey did not have the financial plan, among which only 38% involved the financial planning professionals in their financial planning (CFP Board, 2009). This situation seemed not to improve too much in the following years. According to the findings of 2012 Household Financial Planning Survey, only 31% respondents had their own or professional plans. The report also pointed out that the numbers actually did not change too much compared to 15 years ago (CFP Board, 2012). (Hanna,2011) found that there were only 22% households reported they used financial planners in the 1998-2007 Survey of Consumer Finances datasets, which was consistent with the results from previous surveys. Why people behave contradictorily to what the theory predicts? One of the possible reasons is that it may be challenging to precisely quantify the value of financial planning, thus making it difficult to reveal and analyze the benefit to the public (Hanna, 2010). Understanding the impact of financial planning on households' portfolio highlights the benefit of financial planning and the need for financial planning professionals. This study evaluates the impact of financial planning on households' portfolio performance. Using the data from the 2010 Survey of Consumer Finances, the findings lend empirical support to the belief that financial planning services delivered by professionals benefit the households in higher possibility of reaching better portfolio performance. The study also provides insights into other determinants of portfolio performance. It indicates that wealthy respondents with longer investment horizons were more likely to have better performed portfolios.Item The effect of gender and marital status on financial risk tolerance [abstract](2004) Yao, Rui; Hanna, Sherman D.; Personal Financial PlanningAbstract only. Abstract: This study investigates the effects of marital status and gender on financial risk tolerance and provides implications for financial advice and education. Ho, Milevsky, and Robinson (1994) suggested that women should have riskier portfolios than men because they live longer. However, most studies analyzing financial risk tolerance by gender have found that women are less risk tolerant than men. Risk tolerance is important because it affects a household's portfolio decisions, which ultimately affect a household's wealth accumulation. Inappropriate levels of risk tolerance might lead to problems. If people behave according to a rational economic model and there are no systematic differences in risk aversion for men and women, then women should tolerate more financial risk because they live longer. Also, because married couples have longer life expectancies than unmarried people of the same age, married couples should tolerate more investment risk than unmarried people. Six Survey of Consumer Finances (SCF) datasets representing 18 years (1983-2001) were combined. Same sex couples and same sex partners that live together were excluded from this research. The total sample size used in the analyses was 24,037. A cross-tabulation of risk tolerance levels and gender/marital status provided percent distributions across the gender/marital status categories. A cumulative logistic method was used to test the hypotheses. The repeated-imputation inference (RII) method was used for statistical analyses. The SCF risk tolerance question includes four choices: substantial financial risk, above average financial risk, average financial risk, and no risk. The three dependent variables for the cumulative logistic model are: substantial risk, high risk (substantial and above average risk) and some risk (substantial, above average and average risk). Household types are: married/partnered female respondents, married/partnered male respondents, divorced females, divorced males, widows, widowers, never married females, and never married males. Never married males are most likely (70%) to be willing to take some risk, followed closely by married males (66%), then divorced males (61%), married females (55%), never married females (50%), divorced females (45%), widowers (38%) and widows (27%). Never married males are the most likely to be willing to take substantial risk (8%), and also to be willing to take high risk (29%), and widows are the least likely to be willing to take substantial risk (2%), and also to be willing to take high risk (5%). Of course, other factors such as age, income, and education might account for some of these differences. When controlling for the effect of other variables in the cumulative logistic model, female respondents are less likely to be willing to take some risk, high risk, and substantial risk than males of the same marital status. Never married males are about twice as likely as otherwise similar never married females to be willing to take some risk. Married male respondents are about 1.6 times as likely as otherwise similar married female respondents to be willing to take some risk, and there are similar differences in willingness to take some risk between male and female divorced respondents, and between male and female widowed respondents. Never married males are more likely to be willing to take some risk than other types of respondents, though the difference from divorced males is not significant. Widowers are more likely to be willing to take high risk than other types of respondents, though the differences from never married men and divorced me were not significant. Divorced males are more likely to be willing to take substantial risk than other types of respondents, though the differences from never married men and widowers were not significant. A divorced male respondent is 1.7 times as likely as an otherwise similar married male respondent to be willing to take substantial risk. No previous publication has analyzed differences in the SCF risk tolerance variable by the gender of the respondent in couple households, so previous studies have compared unmarried males, unmarried females, and married couples for which the sex of the respondent was not identified. This study is the first to differentiate married females and married males in terms of financial risk tolerance. Further research is needed to ascertain whether there are differences in preferences or understanding that cause the differences in the willingness to take financial risk. The male-female difference in the willingness to take some risk are problematic for women, given that normative portfolio analysis implies that they should be willing to take at least as much risk as men, even if they 124 are really more risk averse than men. It is plausible that the differences found in this research are related to women not understanding the nature of investment risk.Item Does risk tolerance change in response to market changes?(2010) Yao, Rui; Curl, Angela L.; Personal Financial PlanningAbstract only. Abstract: This study used the 1992-2006 waves of the Health and Retirement Study to investigate changes in risk tolerance levels over time in response to stock market returns. Findings indicate that risk tolerance tends to increase when market returns increase and decrease when market returns decrease. Individuals who change their risk tolerance in this manner are likely to invest in stocks when prices are high and sell when prices are low. Financial advisors and educators should educate investors to help them overcome the bias of overweighting recent news of market performance.Item Defined contribution plan deferral : what are participants doing?(2013) Yao, Rui; Ying, Jie; Micheas, Lada; Personal Financial PlanningAbstract only. Abstract: Using the 2004, 2007 and 2010 Survey of Consumer Finances, this study examines the trend of defined contribution (DC) retirement plan deferral over time. "Buy low and sell high" is an incredibly simple idea. Unfortunately, findings suggest that DC deferral behavior deviates from this principle. Future research is needed to explore reasons for such behavior and provide methods and policies to compensate for this less-than-optimal behavior. Researchers, employers, financial educators and financial practitioners should help the current workforce better understand the behavioral challenges they face and make better decisions for retirement savings.