Journal of Finance Issues https://jfi.aof-mbaa.org/index.php/jfi <p>The Journal is a double-blind reviewed journal that is listed in Cabell's Directories. The Journal was founded by members of the Academy of Finance (AOF), which is one of twelve affiliated organizations that meet annually in Chicago, IL at the Midwest Business Administration Association (MBAA) meetings in the late winter or early spring. While some of the papers submitted to the Journal are papers that were presented at the MBAA/AOF conference and later improved based upon the feedback received at the meetings, the Journal is open to all submissions from authors outside of the AOF membership. No preference is given to papers that were submitted by members over those submitted by non-members. </p> en-US Journal of Finance Issues 2372-2940 Sufficient Income and Sustainable Withdrawal Rates for Retirement https://jfi.aof-mbaa.org/index.php/jfi/article/view/2277 <p>Since the passage of the Employee Retirement Income Security Act of 1974 (ERISA), numerous companies from throughout the United States have chosen to change from providing “Defined Benefit” pension plans to providing “Defined Contribution” pension plans. Successful retirement planning is an iterative process that requires the management of many variables. Some are random and unpredictable in scope and magnitude and others are choices we make as our retirement objectives change. It’s essential that changes be incorporated expeditiously to minimize adverse outcomes. One can begin the process by estimating the annual income required to support one’s “retirement lifestyle” if retirement occurred today. Then extrapolate that income to the planned retirement date based upon the expected rate of inflation. A “modified four percent rule” can then be used to estimate the portfolio value required to support 30 or more years in retirement. The financial planner and client should go through this process at least every two years or when major events suggest a change is required. To assist the planner, this paper extends the Four Percent Rule in the following ways: Time in retirement is 16 – 40 years in 2-year increments with an asset allocation range is 0% to 100% stocks in 15 equal steps.</p> Ronnie Clayton Lemuel Davis Bill Schmidt Bill Scroggins Copyright (c) 2022 Journal of Finance Issues 2022-07-16 2022-07-16 20 1 1 15 On the Models to Evaluate a Merger/Acquisition Project https://jfi.aof-mbaa.org/index.php/jfi/article/view/2617 <p>We compare and contrast the existing merger/acquisition evaluation models and based on the results, propose a model that is more complete. The model emphasizes on the need to value not only the target firm, but also the acquiring firm such that 1) the increase in debt capacity for each firm due to the coinsurance benefit that stems from the diversification effect by pooling two firms together can be considered and 2) the synergy gains accrued to each firm can be valued by the firm’s own discount rate. The model provides methods to account for the effect of the increased debt capacity on the valuations.</p> Chengho Hsieh Yannan Shen Copyright (c) 2022 Journal of Finance Issues 2022-07-16 2022-07-16 20 1 16 26 Robust Testing for Bollinger Band, Moving Average and Relative Strength Index https://jfi.aof-mbaa.org/index.php/jfi/article/view/3218 <p>We test whether the moving average &nbsp;indicator is profitable in trend following and compare the result with common momentum indicators such as Relative Strength Index (RSI) and Bollinger Band (BB). Our sample runs from January 1, 1963, through December 31. 2019. We test whether the signals generated are profitable and compare their success in timing the portfolios based on the previous year's volatility using the Center for Research in Security Prices (CRSP) data. We note the portfolios sorted by volatility to be trend following and use common entry points for timing them. We find all indicators to be more profitable than the Buy and Hold (BH). The moving average (MA) has the strongest return, while BB and RSI show positive return they do worse than the MA. The results hold across all portfolio deciles sorted by both size and volatility. The indicators for RSI and BB are robust to other specifications for entry and parameters. We also show price level analysis for both RSI and BB as well as a trailing three year analysis for the volatility deciles and moving average.</p> Matthew Lutey Copyright (c) 2022 Journal of Finance Issues 2022-07-16 2022-07-16 20 1 27 46 Development of Optimal Stock Portfolio Selection Model in the Tehran Stock Exchange by Employing Markowitz Mean-Semivariance Model https://jfi.aof-mbaa.org/index.php/jfi/article/view/3061 <div class="page" title="Page 1"> <div class="section"> <div class="section"> <div class="layoutArea"> <div class="column"> <p>In an increasingly complex financial market, selecting the optimal stock portfolio has become a subject of intense debate. This study aims to develop a model for optimal stock portfolio selection. We apply Markowitz's mean-semivariance approach to determine the downside risk of portfolios, which reflects investors' intuitive perception of risk. In the first stage, the combination of the Analytic Hierarchy Process (AHP) and Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) with interval data is employed to identify and rank good quality stocks according to the recommended criteria by experts. After selecting qualified stocks, in the second phase, we create portfolios, and the weight invested in each stock is determined. Then, three portfolios are created for three groups of risk-averse, neutral to risk, and risk-taker investors. The mean-semivariance optimization model is used in this phase. The proposed approach in the paper is implemented in a real case study of the Tehran stock exchange (TSE). Three portfolios for three groups of investors were evaluated and compared to the market performance using sharp criteria. All three portfolios outperformed the market portfolio both in terms of risk and return. The proposed model of this study can be utilized as a decision support tool when forming an optimal stock portfolio by considering both experts’ opinions on stock evaluation and investor risk <span style="font-size: 0.875rem; font-family: 'Noto Sans', 'Noto Kufi Arabic', -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen-Sans, Ubuntu, Cantarell, 'Helvetica Neue', sans-serif;">preferences simultaneously.</span></p> </div> </div> </div> </div> </div> Soheila Sadeghi Taimoor Marjani Ali Hassani Jose Moreno Copyright (c) 2022 Journal of Finance Issues 2022-07-16 2022-07-16 20 1 47 71 China’s CEO Pay Reform: An Analysis of the Financial Impact on Central State-Owned Enterprises (CSOEs) https://jfi.aof-mbaa.org/index.php/jfi/article/view/2162 <p>China’s Central State-Owned Enterprises (CSOEs) are considered to be inefficient with major agency problems where the interests of management and shareholders are poorly aligned. Rather than making decisions that make the CSOE more profitable and to help grow the economy, management will choose to solve government problems such as social stability and low employment (retain redundant workers). As China grows its socialist market economy and lists its stocks on markets in New York and London, it has become increasingly more important to reduce agency problems to better align the interests of management and shareholders. At long last, <em>China’s CEO pay reform </em>is passed to reform executive compensation at CSOEs. This reform is driven by President Xi and the Central Politburo of the Communist Party of China. Using an event study methodology, we find CSOEs, on average, experience a 3.05 percent increase in market capitalization from <em>China’s CEO pay reform</em>. In dollar terms, the mean market capitalization increase was $89 million, and cumulatively, the twenty-four CSOEs in our sample gained $2.136 billion in market capitalization. We conclude that <em>China’s CEO pay reform </em>was highly successful, and the gains were a result of lower executive compensation expenses without increased perk consumption and tunneling activities.</p> Xiaochuan Tong Robert Kunkel Copyright (c) 2022 Journal of Finance Issues 2022-07-16 2022-07-16 20 1 72 80