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Papers by Karyn Williams
Social Science Research Network, 2001
SSRN Electronic Journal, 2019
We propose a new objective for portfolio optimization: a weighted average of the probabilities of... more We propose a new objective for portfolio optimization: a weighted average of the probabilities of achieving specific target levels and avoiding specific loss levels. The objective is relatively easy to understand by non-experts, making it easier to calibrate to individuals’ risk profiles. Moreover, our approach is consistent with both standard and non-standard risk preferences, such as those of prospect theory. Comparing the associated optimal portfolio to the optimal mean-variance and Merton’s portfolios, in our setting the one-fund theorem still holds, but the holdings in the risky assets are nonlinear in their risk premium and/or their return rates. Our model helps explain the complicated risk seeking and risk aversion behavior as the level of wealth and time change, observed for fund managers.
The Journal of Business, 2004
Mutual funds generally do not invest in venture capital, private equity, or restricted shares of ... more Mutual funds generally do not invest in venture capital, private equity, or restricted shares of public companies. Consequently, individuals who desire to invest in such securities are unable to do so through diversified mutual funds. In this paper, we identify public policies and regulations that discourage mutual fund involvement in the markets for illiquid equity. We also present evidence that changes in SEC policy caused mutual funds to retreat from investing in illiquid equity. Under the Investment Company Act of l940, the SEC requires mutual fund boards to determine and report the “fair value ” of their investments in restricted shares and other illiquid equity claims. The SEC interprets fair value to mean value in current sale. Under the Investment Company Act, fair value reporting is a “certification ” standard that presumes investors rely on the value representations of the fund board and its auditors. We consider whether alternatives to certification and current sale valua...
Price discovery is a principal function of financial markets. Yet, especially for dealership mark... more Price discovery is a principal function of financial markets. Yet, especially for dealership markets, financial economists know little about how prices are determined. In this paper I analyze the process of price discovery in the multiple-dealer, interbank spot market for foreign exchange. I use DM/$ quotes to calculate interbank dealers’ “information shares,” their proportional contributions to the variance of innovations in the implicit, efficient exchange rate. These information shares are used to analyze relationships between price discovery and dealer characteristics. Unlike the U.S. equity markets, where regional exchanges contribute relatively little to price discovery, less-active interbank dealers play a large role, impounding most of the information into quotes. A pooled analysis of dealers’ intraday information shares indicates that the lower the relative bid-ask spread and the greater the number of regional foreign exchange branches, the higher is a dealer’s contribution...
Claremont Colleges Working Papers, 2000
Social Science Research Network, 2001
SSRN Electronic Journal, 2019
We propose a new objective for portfolio optimization: a weighted average of the probabilities of... more We propose a new objective for portfolio optimization: a weighted average of the probabilities of achieving specific target levels and avoiding specific loss levels. The objective is relatively easy to understand by non-experts, making it easier to calibrate to individuals’ risk profiles. Moreover, our approach is consistent with both standard and non-standard risk preferences, such as those of prospect theory. Comparing the associated optimal portfolio to the optimal mean-variance and Merton’s portfolios, in our setting the one-fund theorem still holds, but the holdings in the risky assets are nonlinear in their risk premium and/or their return rates. Our model helps explain the complicated risk seeking and risk aversion behavior as the level of wealth and time change, observed for fund managers.
The Journal of Business, 2004
Mutual funds generally do not invest in venture capital, private equity, or restricted shares of ... more Mutual funds generally do not invest in venture capital, private equity, or restricted shares of public companies. Consequently, individuals who desire to invest in such securities are unable to do so through diversified mutual funds. In this paper, we identify public policies and regulations that discourage mutual fund involvement in the markets for illiquid equity. We also present evidence that changes in SEC policy caused mutual funds to retreat from investing in illiquid equity. Under the Investment Company Act of l940, the SEC requires mutual fund boards to determine and report the “fair value ” of their investments in restricted shares and other illiquid equity claims. The SEC interprets fair value to mean value in current sale. Under the Investment Company Act, fair value reporting is a “certification ” standard that presumes investors rely on the value representations of the fund board and its auditors. We consider whether alternatives to certification and current sale valua...
Price discovery is a principal function of financial markets. Yet, especially for dealership mark... more Price discovery is a principal function of financial markets. Yet, especially for dealership markets, financial economists know little about how prices are determined. In this paper I analyze the process of price discovery in the multiple-dealer, interbank spot market for foreign exchange. I use DM/$ quotes to calculate interbank dealers’ “information shares,” their proportional contributions to the variance of innovations in the implicit, efficient exchange rate. These information shares are used to analyze relationships between price discovery and dealer characteristics. Unlike the U.S. equity markets, where regional exchanges contribute relatively little to price discovery, less-active interbank dealers play a large role, impounding most of the information into quotes. A pooled analysis of dealers’ intraday information shares indicates that the lower the relative bid-ask spread and the greater the number of regional foreign exchange branches, the higher is a dealer’s contribution...
Claremont Colleges Working Papers, 2000