Research Roundup: So Much for the Benefits of Diversity

- Gender diversity among management teams of U.S. mutual funds reduces performance, write Michaela Bar, Alexandra Niessen, and Stefan Ruenzi of the University of Cologne.

In looking at 2,260 management teams between 1996 to 2003, they found that mixed-gender groups underperformed all male groups by a little over 1 percent per year. On the other hand, they did find that differences in education and work history did seem to improve group performance (1.15 percent per year).

The reason? The researchers suggest that while diversity increases the total pool of information and experience the group can tap, in gender diverse groups that benefit can be sunk by the increased communication costs between men and women (especially if the gender makeup is lopsided, as it's likely to be in the male dominated mutual fund industry).

(UPDATE: Our own Caitlin Liu reports on a related study showing an opposite gender effect: "Large corporations with the highest representation of women board members significantly outperformed those with the highest concentration of men.")

- Estimating the Equity Premium
Wharton's Jeremy Siegel has said that since 1926 the equity premium, or the extra return that investors demand for investing in stocks as opposed to relatively safe bonds, has averaged 6 percent. But Siegel has also warned that this value will trend downwards. And depending on how you calculate the premium, it looks like he's right, according to new research by John Campbell of Harvard University. (free version)

If you base your calculations on recent out-sized profit margins, the equity premium for the world is 5.7 percent and 6.9 percent for the U.S. But if you take a longer view, the premium comes tumbling down to 3.3 percent for the world and 3.2 percent for the U.S. (Another calculation which gives three times the weight to long-term averages versus short-term averages would put the premium at 3.9 percent for the world and 4.1 percent for the U.S.)

Here are a two graphs showing how the equity premium has changed since 1982 from Campell's paper:

equity.premium.world.gif

equity.premium.us.gif

- Questions About the Abortion-Crime Link
Over at NYT's Freakonomics blog, Steven Levitt has produced a couple of videos recapping his and John Donohue's now legendary research linking the drop in crime to the legalization of abortion.

A (relatively) new paper in an upcoming issue of Economica suggests the link may be country specific, or even nonexistent. Two U.K. researchers (David Paton of Nottingham University and Rob Simmons of Lancaster University) and one American (Leo Kahane of California State University) were

unable to say with confidence, however, that abortion legalization in the U.K. significantly reduced crime in England and Wales some twenty years hence. We come to this conclusion by first noting...that total recorded crime in the U.K. began to decrease at about the same time as in the U.S., despite the fact that abortion legalization occurred about five years earlier. Thus we have a discrepancy in the timing of the potential effect of abortion on crime between the U.S. and the U.K. On the other hand, regression models linking effective abortion rates in the U.K. and subsequent recorded crime suggest the same negative and significant correlation between the two variables (at least for total crime and some subcategories) as that reported for the U.S. by [Donohue and Levitt].

Why the discrepancy? The researchers speculate that either the abortion-crime link does exist and that the delayed effects in the U.K. were due to do some other factors, or that the link does not exist and that the U.S. results were "suprious."

The researchers expand upon previous work in the field by considering that the same factors that govern pregnancy and abortion decisions might also influence criminal activity, a relationship not investigated by previous research. They argue:

Economic and social resources available to a (potential) mother are important factors that affect...whether or not she gets pregnant and...whether or not she has an abortion. However, these same factors will also determine the amount of resources that are available to invest in any child that is born which will [in] turn affect the likelihood that the child commits crime in subsequent years. It is possible that poorly resourced areas (leading to higher crime in the future) will have higher abortion rates and this may confound a (true) negative correlation between abortion & crime.

Taking this into account, they find that correlation between crime and abortion largely vanishes. (free version)

Add Your Comment

Report Abuse

Archive

Categories

Links