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The Prudent Investor Rule and Trust Asset Allocation: An Empirical AnalysisRobert H. SitkoffHarvard Law School Max M. SchanzenbachNorthwestern University - School of Law May 1, 2010 ACTEC Journal, Vol. 35, p. 314, 2010 Harvard Law and Economics Discussion Paper No. 668 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 working papers seriesDate posted: July 15, 2010 ; Last revised: September 6, 2010Suggested CitationContact Information
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