The ninth annual TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security was awarded to Robert M. Dammon, Chester S. Spatt, and Harold H. Zhang for their article titled "Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing" (The Journal of Finance, June 2004). This article analyzes the optimal asset allocation and location decisions for investors with taxable and tax-deferred accounts. Asset allocation is the decision of how much of each asset to hold, while asset location is the decision of where to place the assets (taxable or tax-deferred accounts).
The authors find that investors should favor taxable bonds in their tax-deferred accounts and equities in their taxable accounts to the extent possible. This is due to the higher tax burden on bonds relative to equities. High-income investors should not even consider holding tax-exempt bonds in their taxable accounts until their tax-deferred accounts are fully invested in taxable bonds. The benefits of locating assets optimally between the taxable and tax-deferred accounts can be substantial. For young investors, the optimal location policy can increase their accumulated after-tax wealth by nearly 15 percent over their lifetimes. These findings have important implications for how individuals should locate their assets between taxable and tax-deferred.
Robert M. Dammon is Professor of Financial Economics at Carnegie Mellon University; Chester S. Spatt is Mellon Bank Professor of Finance, Director of Center for Financial Markets, Carnegie Mellon University, and Chief Economist, Securities and Exchange Commission (2004-2006); Harold H. Zhang is Associate Professor of Finance at the University of North Carolina, Chapel Hill.
Read the complete text of Chester Spatt's acceptance speech upon receiving the 2004 TIAA-CREF Paul A. Samuelson Award.
2004 TIAA-CREF Paul A. Samuelson Certificate of Excellence Winner
A Certificate of Excellence was awarded to Amy Finkelstein and James Poterba for the article titled "Adverse Selection in Insurance Markets: Policyholder Evidence From the U.K. Annuity Market" (Journal of Political Economy, February 2004). In this paper the authors analyze a unique data set of annuities in the U.K. and finds systematic relationships between mortality and annuity characteristics. On average, the buyers of annuities that provide “backloaded” payout streams, such as annuities that increase their annual payout with the rate of inflation, live longer than annuitants who purchase level nominal annuities. The authors’ findings highlight the importance of considering detailed features of insurance contracts when testing theoretical models of asymmetric information.
Amy Finkelstein is Junior Fellow at Harvard Society of Fellows and Faculty Research Fellow at the National Bureau of Economic Research; James Poterba is the Mitsui Professor of Economics and the Associate Head of the Economics Department at the Massachusetts Institute of Technology, and a Research Associate at the National Bureau of Economic Research.
2004 TIAA-CREF Panel of Distinguished Judges
John H, Cochrane, Ph.D.
Theodore O. Yntema Professor of Finance
University of Chicago
Michael D. Hurd, Ph.D.
Director, RAND Center for the Study of Aging;
Senior Economist RAND Corporation
Brigitte C. Madrian, Ph.D.
Boettner Associate Professor in Financial Gerontology;
Associate Professor of Business and Public Policy
University of Pennsylvania
Joseph P. Newhouse, Ph.D.
John D. MacArthur Professor of Health Policy and Management; Director of the Division of Health Policy Research and Education
John Rust, Ph.D.
Professor of Economics
University of Maryland