The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis

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

19 Pages Posted: 29 Jan 2011 Last revised: 10 Mar 2011

See all articles by Max M. Schanzenbach

Max M. Schanzenbach

Northwestern University - Pritzker School of Law

Robert H. Sitkoff

Harvard University - Harvard Law School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: Spring 2010

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.

Keywords: prudent man rule, prudent investor rule, trust investment law, modern portfolio theory, agency costs, fiduciary, ERISA

JEL Classification: C23, G11, G21, G23, K11

Suggested Citation

Schanzenbach, Max Matthew and Sitkoff, Robert H., The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis (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, Available at SSRN: https://ssrn.com/abstract=1611209

Max Matthew Schanzenbach

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

Robert H. Sitkoff (Contact Author)

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://https://hls.harvard.edu/faculty/directory/10813/Sitkoff

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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