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The Prudent Investor Rule and Trust Asset Allocation: An Empirical AnalysisMax M. SchanzenbachNorthwestern University - School of Law Robert H. SitkoffHarvard Law School Spring 2010 American College of Trust and Estate Counsel Journal, Vol. 35, p. 314, 2010 Harvard Law and Economics Discussion Paper No. 668 Northwestern Law & Econ Research Paper No. 11-05 Abstract: This article reports the results of an empirical study of the effect of the new prudent investor rule on asset allocation by institutional trustees. Using federal banking data spanning 1986 through 1997, the authors find that, after adoption of the new prudent investor rule, institutional trustees held about 1.5 to 4.5 percentage points more stock at the expense of "safe" investments. This shift to stock amounts to a 3 to 10 percent increase in stock holdings and accounts for roughly 10 to 30 percent of the over-all increase in stock holdings in the period under study. The authors conclude that the adoption of the new prudent investor rule had a significant effect on trust asset allocation.
Number of Pages in PDF File: 19 Keywords: prudent man rule, prudent investor rule, trust investment law, modern portfolio theory, agency costs, fiduciary, ERISA JEL Classification: C23, G11, G21, G23, K11 Accepted Paper SeriesDate posted: January 29, 2011 ; Last revised: March 10, 2011Suggested CitationContact Information
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