Financial Anomalies

Nobel Laureate Among Contributors to Latest Installment of "Financial Planning Review"

Second installment of CFP Board Center for Financial Planning’s peer-reviewed, academic journal now available

WASHINGTON, Jan 07,, 2018 /PRNewswire/ — The CFP Board Center for Financial Planning tomorrow has issued the second installment of Financial Planning Review, featuring key research benefitting the financial planning profession – including a paper co-authored by Harry Markowitz, recipient of the 1990 Nobel Memorial Prize in Economic Sciences.

“Dr. Markowitz’s contribution to Financial Planning Review is truly a defining moment in the academic world of financial planning,” said Charles R. Chaffin, Ed.D., executive editor of the Review. “Having Dr. Markowitz contribute to financial planning’s body of knowledge helps to further advance the academic discipline of financial planning.”

Authored by Markowitz of Harry Markowitz & Company, and John Guerard of McKinley Capital Management, LLC, “The Existence and Persistence of Financial Anomalies: What Have You Done for Me Lately?” documents the existence, persistence, and effectiveness of publicly available variables linked to financial anomalies during the 1979-1999 time period with particular emphasis on earnings forecasts. The paper then explores whether these variables have held up through the 2003-2017 time period, concluding that:

  • (1) many of the reported financial anomalies published in the 1979 – 1999 time period maintain their statistically significant active (or excess) returns;
  • (2) the anomalies are larger in non-U.S. markets than in the U.S.; and (3) reasonable transactions costs do not destroy the excess returns.

“The implications for investors, financial planners, and advisors are strong: each should be aware of these effects and should make use of the knowledge of such risk premium or alpha sources when constructing portfolio allocations,” write the Review’s co-editors, Vicki Bogan, Ph.D., Chris Geczy, Ph.D., and John Grable, Ph.D., CFP®. “If not, investors, financial planners, and advisors should at least be aware of the risk-sharing (or alpha give-up) they experience when they are on the other side of investors capturing the benefit of these returns.”

Other papers featured in the second issue include, with abstracts:

“Exploring the Relationships Between Impatience, Savings Automation, and Financial Welfare”
by Brianna Middlewood, Alycia Chin, Heidi Johnson and Melissa Knoll (Consumer Financial Protection Bureau)

The Behavioral Life-Cycle hypothesis (Thaler & Shefrin, 1981) models consumers as having both impatient “doer” preferences, representing their desire to spend now, and patient “planner” preferences, representing long-run welfare considerations. The Behavioral Life-Cycle hypothesis suggests that those with doer preferences may benefit from strategies that constrain their present behavior and promote saving for the future, like automating deposits into savings accounts. We analyze over 4,000 responses from the nationally representative National Financial Well-Being Survey to (1) describe consumer characteristics associated with the decision to automate savings deposits, and (2) explore whether automation is related to improved financial welfare, especially for impatient consumers. We find that savings automation is positively associated with financial socialization (whether the respondent’s family discussed financial matters growing up) and financial skill (the ability to act on financial knowledge). We also find that impatient consumers—relative to those with stronger planner preferences—have fewer liquid savings, lower financial well-being, less confidence in their ability to raise $2,000, and more difficulty paying bills. However, as predicted, these differences between consumers with doer and planner preferences largely disappear for those who automate savings deposits. We discuss implications of this research for financial planners in helping clients improve financial welfare.

“The Pivotal Role of Fairness: Which Consumers Like Annuities?”
by Suzanne Shu and Robert Zeithammer (UCLA), and Robert Payne (Duke University)

Life annuities can be a valuable component of the decumulation stage of wealth during retirement. While economists argue that most retirees should annuitize, actual demand in the marketplace is low. We analyze data from two studies to determine how measurable individual differences among consumers predict their interest in annuities. We find that a relatively high percentage of respondents dislike all annuities. Demographic factors are not predictive of which individuals dislike annuities, and individual factors predicted by economic models to be important (such as beneficiaries) have small or even opposite effects. The strongest individual differences we measured that predicts liking of annuities is the respondent’s perception of product fairness. We discuss implications of our findings for financial planners hoping to help their customers with these decumulation challenges.

“Supportive and Mitigating Factors associated Financial Resiliency and Distress”
by Vibha Bhargava, Lance Palmer and Swarn Chatterjee (University of Georgia), and Richard Stebbins (University of Alabama)

This study uses a nationally representative dataset to estimate the contribution of general human capital, social capital, and financial management practices to the individual’s relative financial well-being following bankruptcy. Results indicate that individuals who possess higher levels of general human capital are significantly more likely to achieve higher relative financial well-being following bankruptcy compared to similar individuals with lower levels of general human capital. Other findings indicate that social capital and financial management capital related factors were also positively associated with the relative financial well-being of individuals recovering from bankruptcy. Currently mandated debtor education would likely contribute to better long-term outcomes for bankruptcy filers if it were to emphasize general human capital development in addition to basic financial management.

The Behavioral Life-Cycle hypothesis models consumers as having both impatient "doer" preferences, representing their desire to spend now, and patient "planner" preferences, representing long-run welfare considerations...

Published by John Wiley & Sons quarterly, the Review features high quality scholarly research, including rigorous empirical and methodological analyses directly and indirectly related to financial planning practice. These topics include, but are not limited to, financial planning; portfolio choice; behavioral finance; household finance; psychology and human decision-making; financial therapy, literacy and wellness; consumer finance and regulation; and human sciences. Accepted papers span the broad spectrum of research methodologies and data analyses.

The journal is available electronically from the Wiley Online Library. Each edition of the Review is distributed electronically to nearly 82,000 CERTIFIED FINANCIAL PLANNER™ professionals throughout the United States.

Volume One, Issues 3-4, of the double-blind, peer-reviewed academic journal is available electronically here.




Certified Financial Planner Board of Standards, Inc. is the professional body for personal financial planners in the U.S. CFP Board sets standards for financial planning and administers the prestigious CFP® certification – one of the most respected certifications in financial services – so that the public has access to and benefits from competent and ethical financial planning. CFP Board, along with its Center for Financial Planning, is committed to increasing the public’s awareness of CFP® certification and access to a diverse, ethical and competent financial planning workforce. Widely recognized by firms as the standard for financial planning, CFP® certification is held by nearly 82,000 people in the United States.
The CFP Board Center for Financial Planning seeks to create a more diverse and sustainable financial planning profession so that every American has access to competent and ethical financial planning advice. The Center brings together CFP® professionals, firms, educators, researchers and experts to address profession-wide challenges in the areas of diversity and workforce development, and to build an academic home that offers opportunities for conducting and publishing new research that adds to the financial planning body of knowledge. More about the Center and its initiatives can be found at
SOURCE Certified Financial Planner Board of Standards, Inc.