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Article
Publication date: 25 May 2021

Hirotaka Fushiya, Tomoki Kitamura and Munenori Nakasato

This study aims to investigate the impact of interest rates, the underlying asset and investment experience on the investment behavior of Japanese retail investors toward…

Abstract

Purpose

This study aims to investigate the impact of interest rates, the underlying asset and investment experience on the investment behavior of Japanese retail investors toward structured products (SPs).

Design/methodology/approach

Three treatments are constructed through internet-based survey experiments: interest rate, underlying asset framing and investment experience treatments. The interest rate treatment includes high- and low-interest rate environments. The underlying asset framing treatment includes equity and foreign exchange rates for the SP. The investment experience treatment includes experienced and inexperienced respondents for SPs.

Findings

The main finding of this study concerns the effect of the interaction between low-interest rates and investment experience. Specifically, SP-experienced investors tend to choose SPs in a low-interest rate environment and prefer equity-linked SPs, even though such SPs are overpriced. This finding is useful for financial regulators in formulating policies that protect retail SP investors in low-interest rate environments worldwide.

Originality/value

This study is the first to measure the sensitivities of investment behavior regarding the relative attractiveness of SPs to low-risk straight bonds, given interest rates, the underlying asset and investment experience. It provides evidence to support the development of SP regulations.

Details

The Journal of Risk Finance, vol. 22 no. 2
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 15 June 2021

Tomoki Kitamura and Kunio Nakashima

Deferred annuities, which offer longevity insurance with relatively low premiums, are a potential payout option in defined contribution (DC) pension plans in Japan. This…

Abstract

Purpose

Deferred annuities, which offer longevity insurance with relatively low premiums, are a potential payout option in defined contribution (DC) pension plans in Japan. This study aims to measure individual preferences for these annuities.

Design/methodology/approach

This study conducts stated choice experiments using an original internet survey. This methodology provides a decision-making scenario similar to that faced by individuals when making real retirement saving decisions. Subjective valuations of deferred, immediate and term annuities are compared.

Findings

This study finds that male individuals have an insignificant preference for deferred annuities – the benefits of which begin at an advanced age. On average, deferred annuities are considered a gamble, betting against life and individuals who are married and have higher financial assets tend to value them less.

Originality/value

While previous studies, based on theory and simulations, have found that deferred annuities should be included in individual retirement assets, this study examines annuity preferences from the demand side (i.e. DC plan participants) –an approach that has not been addressed in the literature.

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Article
Publication date: 19 May 2020

Kozo Omori and Tomoki Kitamura

This study theoretically investigates the impacts of tax benefits on funding level and risk-taking of a corporate defined benefit (DB) pension plan.

Abstract

Purpose

This study theoretically investigates the impacts of tax benefits on funding level and risk-taking of a corporate defined benefit (DB) pension plan.

Design/methodology/approach

The present value of the future tax benefits is maximized while the stockholders determine the funding level and investment risk-taking in DB plans. As a feature of DB plans, this study considers pension benefits to be pre-determined. Further, the pension beneficiary has a priority over the sponsor company's creditors for the pension reserve fund. These are seldom considered in previous studies.

Findings

It is desirable to decrease the funding level of DB plans to increase tax benefits. This is because the effect of tax exemption for the pension fund's investment income is eliminated by the change in the contribution arising from the investment's result. The optimal investment risk-taking depends on the funding level.

Originality/value

The impact of tax benefits on decision-making for DB plans is significantly different from that stated by previous studies, that is, an increase in pension funds will reduce the corporate debt. To explain corporate behavior, this study's results—derived from the essential feature of DB plans, which could not have been included in previous studies—should be considered.

Details

Journal of Economic Studies, vol. 47 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 17 April 2020

Tomoki Kitamura and Kunio Nakashima

The purpose of this study is to examine the potential and cost of policy incentives for individuals to defer public pension (social security) claims.

Abstract

Purpose

The purpose of this study is to examine the potential and cost of policy incentives for individuals to defer public pension (social security) claims.

Design/methodology/approach

Using Internet survey experiments, the impacts of introducing three potential policies to defer public pension claims are examined: (1) a tax incentive for private term pension premiums, (2) a tax incentive for private term pension benefits and (3) a tax disincentive for financial asset holdings. Effectiveness of information provision regarding projection of future financial assets is also examined.

Findings

Tax incentives have a certain impact on deferment of public pension claims. Among incentives, increase of benefits is the most effective one. Providing information regarding future financial assets reduces incentives.

Originality/value

This study is original in measuring cost for delaying public pension claims according to incentives and information provision.

Details

Review of Behavioral Finance, vol. 13 no. 2
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 25 June 2019

Tomoki Kitamura and Kozo Omori

The purpose of this paper is to theoretically examine the risk-taking decision of corporate defined benefits (DB) plans. The equity holders’ investment problem that is…

Abstract

Purpose

The purpose of this paper is to theoretically examine the risk-taking decision of corporate defined benefits (DB) plans. The equity holders’ investment problem that is represented by the position of a vulnerable option is solved.

Design/methodology/approach

The simple traditional contingent claim approach is applied, which considers only the distributions of corporate cash flow, without the model expansions, such as market imperfections, needed to explain the firms’ behavior for DB plans in previous studies.

Findings

The authors find that the optimal solution to the equity holders’ DB investment problem is not an extreme corner solution such as 100 percent investment in equity funds as in the literature. Rather, the solution lies in the middle range, as is commonly observed in real-world economies.

Originality/value

The major value of this study is that it develops a clear mechanism for obtaining an internal solution for the equity holders’ DB investment problem and it provides the understanding that the base for corporate investment behavior for DB plans should incorporate the fact that in some cases the optimal solution is in the middle range. Therefore, the corporate risk-taking behavior of DB plans is harder to identify than the results of the empirical literature have predicted.

Details

Managerial Finance, vol. 45 no. 8
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 16 January 2014

Tomoki Kitamura and Munenori Nakasato

Previous studies showed mixed results as to the cause of myopic loss aversion (MLA). This paper reexamines the main driver of MLA, considering two factors from previous…

Abstract

Purpose

Previous studies showed mixed results as to the cause of myopic loss aversion (MLA). This paper reexamines the main driver of MLA, considering two factors from previous studies and an additional factor.

Design/methodology/approach

Experimentally investigate whether flexibility of investment, frequency of information feedback, or timing of decision cause MLA.

Findings

Timing of decision and flexibility of investment explain most differences in subject behavior. Frequency of information feedback makes only a marginal contribution.

Originality/value of the paper

The differences in subject behavior can be interpreted by a shift in their reference points depending on the difference in flexibility of investment, frequency of information feedback, or timing of decision.

Details

Experiments in Financial Economics
Type: Book
ISBN: 978-1-78350-141-0

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Book part
Publication date: 2 December 2013

Abstract

Details

Experiments in Financial Economics
Type: Book
ISBN: 978-1-78350-141-0

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Abstract

Details

Experiments in Financial Economics
Type: Book
ISBN: 978-1-78350-141-0

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