TIAA-CREF Institute Gives Samuelson Award to Author of Study on Implications of Predictability of Stock Market Returns Uncertainty Should Lead to More Caution than Commonly Believed
TIAA-CREF Institute’s fifth annual Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security has been given to the author of a study which cautions investors that the long-term performance of the stock market and the expected returns from equities are more uncertain than is generally believed. Nicholas Barberis of the University of Chicago’s Graduate School of Business won the award for "Investing for the Long Run when Returns are Predictable," published in the Journal of Finance in February 2000.
Professor Barberis points out that "many people in 401(k) plans, for example, opt for a heavy weighting in stocks because they are told that equities are less risky over long horizons and that equities outperform other assets over time. However, there are only about 70 years of meaningful data on the stock market’s behavior." According to Barberis, "that relatively limited picture isn’t reliable enough for investors to be confident about the degree of mean reversion, or predictability, which exists in the stock market, and that makes it harder to judge the long-run risk of stocks. The limited data also leave us uncertain about the premium by which equities outperform bonds," explains Barberis.
Nevertheless, the prize-winning research concludes that, despite the uncertainty, longer-term investors can have enough confidence in the existence of mean-reversion and of an "equity premium" to justify a relatively high allocation to stocks. But Barberis warns that the equity weighting suggested by his research is "quite a bit lower than what would be recommended by a model which ignores the level of uncertainty completely." He adds that investors would do well to take this ambiguity into account when making long-range asset allocation decisions.
The Paul A. Samuelson Award is determined by an independent panel of judges and is administered by the TIAA-CREF Institute, the research and educational arm of TIAA-CREF. The Institute’s fields of interest include pensions and retirement; corporate governance; investment products and strategy; higher education financing and trends; health, life and long-term care insurance; endowments and planned giving; and financial literacy. The award was named after Nobel Prize winner Paul Samuelson in honor of his achievements in the field of economics, as well as for his service as a CREF trustee from 1974-85. The award carries a $20,000 prize.
The Award was presented by John H. Biggs, TIAA-CREF chairman, president and CEO, at a January 5, 2001 reception held at the Allied Social Science Association’s annual meeting at the Hilton New Orleans Riverside Hotel.
Technical summary of Professor Barberis' paper as prepared by Douglas Fore, Manager of Pensions and Economic Research, TIAA-CREF Institute.
To view the complete text of the speech delivered by Paul Samuelson at the 2000 Paul A. Samuelson Award ceremony, click here.
2000 TIAA-CREF Certificates of Excellence
Price V. Fishback and Shawn Everett Kantor for "A Prelude to the Welfare State: The Origins of Workers’ Compensation" (University of Chicago Press, 2000)
Workers’ compensation was arguably the first widespread social insurance program in the United States and the most successful form of labor legislation to emerge from the early Progressive Movement. Adopted in most states between 1910 and 1920, workers’ compensation laws have been seen as paving the way for social security, Medicare, unemployment insurance, and eventually the broad network of social welfare programs we have today. For the most part, workers’ compensation laws have been historically perceived as a profound labor victory, yet some recent scholarship has suggested that industry leaders, who believed that such legislation could be worked to their advantage, were really the driving force behind its adoption. We challenge both these views, arguing that, rather than being an early progressive victory, workers’ compensation succeeded because all relevant parties – labor and management, insurance companies, lawyers, and legislators – benefited from the legislation.
Prior to 1910, those hurt in workplace accidents were required to prove negligence on the part of their employer in order to win compensation for their injuries; workers making a claim faced the financial and legal uncertainties of court cases or settlements, while employers feared punitive awards for damages and public relations headaches. Through workers’ compensation laws, laborers gained greater protection for work-related injuries and generally higher restitution when accidents occurred. Employers themselves were generally freed from further liability by the no-fault system and shifted the costs of compensation back to the workers through lower wages. The compensation laws in no way deprived lawyers and insurance companies of their livelihoods and in fact solved several logistical problems posed by the old system. For the general public, the new legislation imposed no additional tax burden. Of the many social welfare initiatives advanced as progressive reforms, workers’ compensation, then, was best suited for widespread acceptance.
Sylvester J. Schieber and John Shoven for "The Real Deal: The History and Future of Social Security" (Yale University Press, 1999)
Will the Social Security system flounder as millions of baby boomers enter their retirement years? Is the frightening vision of an impoverished old age a glimpse into the real future for Americans of the next generation? The authors of this book put debates about Social Security reform into historical perspective, consider various reform ideas, and elaborate a proposal to ensure that the system can continue to meet the claims of the retired and the disabled. Sylvester Schieber and John Shoven, leading experts on retirement issues, set forth a carefully considered plan to change the way we finance Social Security and thereby secure its future viability.
Exploring the history of the Social Security system from its origins during the Depression to its current troubled prospects, Schieber and Shoven analyze the program’s economic structure and introduce the remarkable personalities who influenced its evolution. The authors show how Social Security today differs from the program Franklin D. Roosevelt envisioned and how the shift to pay-as-you-go funding has led to the system’s current problems. Seen in historical context, some reform approaches are revealed as a renewal of attempts to fund Social Security through means that have repeatedly failed. The authors argue for mandatory private retirement savings accounts for workers – a proposal that would lighten retirement security burdens for future generations, avoid tax increases, and preserve the system’s progressivity. This book is essential reading not only for policymakers but for anyone else who wishes to understand what Social Security reform will mean for us as a nation and as individuals.
2000 Panel of Distinguished Judges
Willard T. Carleton
Karl L. Eller Professor of Finance, College of Business and Public Administration
University of Arizona
Robert L. Clark
Professor, Department of Economics and Department of Business Management
North Carolina State University
Marjorie B. McElroy
Professor of Economics and Chair, Department of Economics
Olivia S. Mitchell
International Foundation of Employee Benefit Plans Professor of Insurance and Risk Management, The Wharton School
University of Pennsylvania
Joseph F. Quinn
Professor of Economics and Dean, College of Arts and Sciences