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AN NBER PUBLICATION ISSUE: No. 4, April 2002

The Digest

A free monthly publication featuring non-technical summaries of research on topics of broad public interest
Employers and policymakers need to recognize that there is no such thing as a neutral menu of options for a 401(k) plan but rather that how the decisions are framed will affect the choices that employees make. Enron's collapse has put company-sponsored 401(k) retirement plans under the spotlight. As well as losing their jobs, Enron employees lost most of their investment in 401(k) plans that was concentrated overwhelmingly in Enron stock. The Enron example highlights...

Research Summaries

Article
Stocks that are highly correlated with the market when the market declines have higher expected returns than stocks that are not highly correlated with the market during its downturns. The difference between portfolios with the most downside risk and the least downside risk is very large, more than 6.5 percent per year. In Downside Risk and the Momentum Effect (NBER Working Paper No. 8643), authors Andrew Ang, Joseph Chen, and Yuhang Xing show that there is a premium...
Article
The decisions of small firms to offer health insurance are fairly sensitive to the tax subsidization of insurance prices. Moreover, among firms that offer health insurance, the level of insurance spending is very sensitive to tax subsidies. In 1987, 14.8 percent of non-elderly Americans were without health insurance. By 1997, 18 percent of the non-elderly population did not have health insurance, a 25 percent increase. Despite a recent decrease in that percentage, 40...
Article
The growing popularity of index membership since the mid-1980s has pumped up the price of S&P 500 stocks relative to stocks of other similar companies outside the index. At cocktail parties, finance professors often are pressed for investment advice, and they typically recommend a well-diversified index fund. "This advice may have been far sounder than its propagators ever imagined," note NBER Research Associate Randall Morck and co-author Fan Yang. Finance...
Article
When other factors are held constant, mental illness does increase use of addictive goods -- relative to use by the overall population -- by 20 percent for alcohol, 27 percent for cocaine, and 86 percent for cigarettes. Mental illness is defined as an abnormality in cognition, emotion, mood, or social function, which is severe in level or duration. Many people experience personal upheavals, but a true diagnosable mental illness affects about 24 percent of the U.S....

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