UTS site search

Professor Susan Thorp

Biography

Professor Susan Thorp holds the Chair of Finance and Superannuation at the University of Technology, Sydney. The Chair is funded by the Sydney Financial Forum (through Colonial First State Global Asset Management), the NSW Government, the Association of Superannuation Funds of Australia (ASFA), the Industry Superannuation Network (ISN), and the Paul Woolley Centre for the Study of Capital Market Dysfunctionality within the UTS Business School.
Susan’s research focuses on retirement savings and long-horizon wealth management, with particular interest in consumer decision making. Susan is a Chief Investigator on three current Australian Research Council projects studying member choices in superannuation. Her publications in leading international journals have included studies of financial market integration, retirement savings portfolio management, annuitisation, retirement income streams, and the features of the Age Pension. She is a member of the Centre for the Study of Choice and the Quantitative Finance Research Centre at UTS, and an associate of the Centre for Applied Macroeconomic Analysis, ANU, and the National Centre for Econometric Research, QUT. Professor Thorp gained her BEc (Hons) from the University of Sydney, and her PhD from the University of New South Wales. She previously worked in the Economic Group at the Reserve Bank of Australia.

Image of Susan Thorp
Professor of Finance and Superannuation, Finance Discipline Group
Core Member, Centre for the Study of Choice
Core Member, Quantitative Finance Research Centre
B.Ec. Hons. (USyd), Dip.Ed.(UNE), PhD (UNSW)
Member, Economic Society of Australia
Download CV  (PDF 455 Kb, 5 pages)
Phone
+61 2 9514 7784
Room
CB08.07.36

Research Interests

Pension finance, life-cycle models, applied financial econometrics.

Can supervise: Yes

Econometrics, time series, life-cycle finance

Chapters

Thorp, S.J., Kingston, G. & Bateman, H. 2007, 'Financial Engineering for Australian Annuitants' in Bateman, H. (ed), Retirement Provision in Scary Markets, Edward Elgar, USA, pp. 123-144.

Conferences

Thorp, S.J. 2013, 'Engagement: A partial solution to the annuity puzzle'.
Thorp, S.J. 2012, 'Engagement rationality and retirement benefit choice'.
Thorp, S.J. 2012, 'Profiles, plans and perceptions of Australian retirees'.
Thorp, S.J. 2012, 'Communication and competence: How ordinary people understand investment risk'.
Thorp, S.J. 2012, 'Endogenous crisis dating and contagion using smooth transition structural GARCH'.
Thorp, S.J. 2011, 'Economic rationality, risk presentation, and retirement portfolio choice'.
Thorp, S.J. & Silvennoinen, A. 2011, 'Conditional correlation dynamics in energy and agriculture'.
Thorp, S.J. 2011, 'Financial competence, risk presentation and retirement portfolio preferences'.
Thorp, S.J. 2011, 'Profiles, plans and preceptions of Australian retirees'.
Thorp, S.J. 2011, 'Members and retirement - what do they want, need and choose?'.
Thorp, S.J. 2011, 'How super are superannuation benefit decisions?'.
Thorp, S.J. 2010, 'Financial decision in turbulent markets'.
Bateman, H., Louviere, J.J., Islam, T., Satchell, S.E. & Thorp, S.J. 2010, 'Retirement investor risk tolerance in tranquil and crisis periods: Experimental survey evidence'.
Silvennoinen, A. & Thorp, S.J. 2010, 'Financialization, crisis and commodity correlation dynamics', Financial Management Association 2010 Meetings, Financial Management Association, New York, USA, pp. 1-47.
We study conditional volatility and correlation dynamics for returns to commodity fu- tures, stocks and bonds, from May 1990-July 2009 using DSTCC- GARCH. The models allow correlation to vary smoothly between extreme states via transition functions. Expected stock volatility (VIX) and money manager open interest in futures markets are relevant transition variables. Results show increasing integration between commodity futures and stocks: com- modity returns volatility is predicted by common factors but also by .nancial traders.open positions. We observe higher and more variable correlations between commodity futures and stock returns from mid-sample, with many series showing a structural break in the conditional correlation processes from the late 1990s.
Silvennoinen, A. & Thorp, S.J. 2009, 'Commodity, stock and bond correlation in calm and crisis: Evidence from smooth transition models'.
Silvennoinen, A. & Thorp, S.J. 2009, 'Commodity, stock and bond correlations in calm and crisis: Evidence from smooth transition models'.
Bateman, H., Louviere, J.J., Islam, T., Satchell, S.E. & Thorp, S.J. 2009, 'Retirement investor risk tolerance when risk is range: Experimental survey evidence from tranquil and crisis periods'.
Thorp, S.J., Hulley, H., McKibbin, R. & Pedersen, A. 2009, 'Means-tested income support, portfolio choice and decumulation in retirement'.
Thorp, S.J. 2009, 'An experimental survey of investment decisions for retirement savings'.
Thorp, S.J. 2008, 'An experimental survey of investment decisions for retirement savings'.
Satchell, S. & Thorp, S.J. 2008, 'Discounting and consumption over an uncertain horizon: Draw-down plans for family trusts'.
Thorp, S.J. 2008, 'Discounting and consumption under uncertain horizons: Drawdown plans for family trusts'.
Thorp, S.J. 2008, 'Unobservable shocks as carriers of contagion'.
Dungey, M., Milunovich, G. & Thorp, S.J. 2008, 'Unobservable shocks as carriers of contagion'.
Satchell, S. & Thorp, S.J. 2008, 'Scenario analysis with recursive utility: Dynamic consumption plans for charitable endowments'.
Menzies, G.D. & Thorp, S.J. 2008, '"The storyboard approach to lectures and presentations" and "Peer feedback: A pilot study" Teaching tools from the international teachers programme'.
We give two short presentations. The first shows how to build persuasive and coherent visual presentations using the Storyboard Approach. The second describes and demonstrates the power of peer feedback for teaching development using our own recent experience from a pilot project. Please come and join the discussion.
Petrichev, K. & Thorp, S.J. 2007, 'Valuing basic pensions'.
Bateman, H. & Thorp, S.J. 2007, 'Choices and constraints over retirement income streams: Comparing rules and regulations'.
Dungey, M., Milunovich, G. & Thorp, S.J. 2007, 'Asset market linkages using structural GARCH identification'.
Petrichev, K. & Thorp, S.J. 2007, 'Valuing Basic Pensions', Proceedings of the 11th Annual Conference of the Asia-Pacific Risk and Insurance Association, Asia-Pacific Risk and Insurance Association, Taipei, Taiwan, pp. 1-35.
Governments around the world are reviewing basic pension systems in the light of increasing demands on public funds. In Australia, Government policy aims to in- crease reliance on private retirement savings and reduce demand on the targeted Age Pension. Using a new analytical valuation method for retirement income streams (Milevsky and Robinson 2005) we value the Age Pension by calculating the amount of wealth needed to sustain an annual draw-down equivalent to the Australian ba- sic pension, if pensioners were to be responsible for generating the income stream themselves. We account for both investment and longevity risk. A 65-year-old sin- gle retiree with average life-expectancy needs retirement wealth equivalent to 8.5 times average annual earnings to replicate the payments and insurance features of the public pension using standard draw-down products. Delaying retirement by 5 years reduces required savings by around 5%, but linking pension payments to earnings growth rather than price in.ation increases required wealth by up to 25%. Commercial single life annuities can replicate the pension more cheaply than the draw-down plans we evaluate, but remain unpopular with retirees. We conclude that the basic pension is very valuable, representing a large notional transfer of wealth at retirement.
Bateman, H. & Thorp, S.J. 2006, 'Decentralised investment management: An analysis of non-profit pension funds', 17th Annual Asian Finance Association/ FMA Conference, Asian Finance Association, Auckland, New Zealand, pp. 1-34.
Bateman, H. & Thorp, S.J. 2006, 'Decentralised investment management: An analysis of non-profit pension funds', Proceedings of the 2006 FMA Annual Meeting, FMA, Salt Lake City, pp. 1-44.
Thorp, S.J. 2006, 'Symmetric versus asymmetric conditional covariance forecasts'.
Thorp, S.J. 2006, 'Asymmetric risk and international portfolio choice', Ausralasian Meeting of the Econometric Society.
Thorp, S.J. 2006, 'Information processing and measures of integration: New York, London and Tokyo', 4th Infiniti Conference on Financial Market Integration.
Bateman, H. & Thorp, S.J. 2006, 'Decentralised investment management: An analysis of non-profit pension funds.'.
Thorp, S.J. & Milunovich, G. 2006, 'Asymmetric risk and international portfolio choice', Proceding of the 2006 FMA Annual Meeting, FMA, Salt Lake City, USA, pp. 1-37.
Thorp, S.J. & Bateman, H. 2006, 'Decentralized investment management: An analysis of non-profit pension funds'.
Thorp, S.J. 2006, 'Symmetric versus asymmetric conditional covariance forecasts: Does it pay to switch?'.
Volatilities and correlations for equity markets rise more after negative returns shocks than after positive shocks. Allowing for these asymmetries in covariance forecasts decreases mean-variance portfolio risk and improves investor welfare. We compute optimal weights for international equity portfolios using predictions from asymmetric covariance forecasting models, and a spectrum of expected returns. Investors who are moderately risk averse, have longer rebalancing horizons, and who hold US equities benefit most, and may be willing to pay around 100 basis points annually to switch from symmetric to asymmetric forecasts. Accounting for asymmetry in both variances and correlations significantly lowers realized portfolio risk.
Thorp, S.J. 2005, 'Discussion of R Bowden and J Zhu "Asymmetric hedging of the corporate terms of trade"', ANU-UWA PhD Conference in Economics and Business, -, -.
Thorp, S.J. 2005, 'Asymmetric risk and international portfolio choice', 13th Australian Colloquim of Superannuation Researchers, -, -.
Thorp, S.J. 2005, 'Valuing volatility spillovers', 2005 Global Finance Conference, -, -.
Thorp, S.J. 2004, 'That courage is not inconsistent with caution: Foreign currency hedging for superannuation funds"'.
Kingston, G. & Thorp, S.J. 2004, 'Annuitization and asset allocation with HARA utility'.
Kingston, G. & Thorp, S.J. 2004, 'Annuitization and asset allocation with HARA utlity'.
Thorp, S.J. 2003, 'Investment and Longevity Risk in Retirement: Optimal Decumulation with a Consumption Floor', Papers and Proceedings, PhD Conference in Economics and Business, University of Western Australia, Perth, Australia.
Thorp, S.J. 2003, 'Financial engineering for Australian annuitants'.
Thorp, S.J. 2002, 'Investing internationally: Currency issues for superannuation funds'.
Stevens, G. & Thorp, S.J. 1989, 'The relationship between financial indicators and economic activity: Some further evidence', Studies in money and credit, Reserve Bank of Australia, Sydney, Australia.
Stevens, G., Thorp, S.J. & Anderson, J. 1986, 'The Australian demand function for money: Another look at stability', Structural change and economic modelling, Papers and Proceedings of the 7th Pacific Basin Central Bank Conference on Economic Modelling, Reserve Bank of Australia, Sydney, Australia.

Journal articles

Bird, R., Liem, H. & Thorp, S.J. 2014, 'Infrastructure: Real assets and real returns?', European Financial Management.
Bateman, H., Eckert, C., Geweke, J., Louviere, J.J., Satchell, S.E. & Thorp, S.J. 2014, 'Financial competence, risk presentation and retirement portfolio preferences', Journal of Pension Economics and Finance, vol. 13, no. 1, pp. 27-61.
View/Download from: Publisher's site
Bateman, H., Eckert, C., Geweke, J., Louviere, J.J., Satchell, S.E. & Thorp, S.J. 2014, 'Risk presentation and retirement portfolio choice', Review of Finance.
Agnew, J., Bateman, H. & Thorp, S.J. 2013, 'Financial literacy and retirement planning in Australia', Numeracy, vol. 6, no. 2, pp. 1-25.
View/Download from: Publisher's site
Financial literacy and numeracy are closely tied. Furthermore, financial literacy has been shown to relate to important financial behaviors. This study examines the relationship between financial literacy and retirement planning using a measure that includes questions requiring numeracy. We implement a customized survey to a representative sample of 1,024 Australians. Overall, we find aggregate levels of financial literacy similar to comparable countries with the young, least educated, those not employed, and those not in the labor force most at risk. Our financial literacy measure is positively related to retirement planning in our sample.
Hulley, H., McKibbin, R., Pedersen, A. & Thorp, S.J. 2013, 'Means-tested public pensions, portfolio choice and decumulation in retirement', The Economic Record, vol. 89, no. 284, pp. 31-51.
View/Download from: Publisher's site
Age Pension means-testing buffers retired households against shocks to wealth and may influence decumulation patterns and portfolio allocations. Simulations from a simple model of optimal consumption and allocation strategies for a means-tested retired household indicate that, relative to benchmark, eligible and near-eligible households should optimally decumulate faster, and choose more risky portfolios, especially early in retirement. Empirical modelling of a Household, Income and Labour Dynamics in Australia panel of pensioner households confirms a riskier portfolio allocation by wealthier retired households. Poorer pensioner households decumulate at around 5 per cent p.a. on average; however, better-off households continue to add around 3 per cent p.a. to wealth, even when facing a steeper implicit tax rate on wealth.
Agnew, J., Bateman, H. & Thorp, S.J. 2013, 'Superannuation knowledge and plan behaviour', JASSA, vol. 2013, no. 1, pp. 45-50.
This paper presents new evidence from a national survey which indicates that working age Australians often are ill-informed about many important features of the superannuation system, and the results from regression analysis suggest a relationship between superannuation knowledge and savings behaviour. The results provide motivation for further research in the area and suggest more can be done to educate individuals about the superannuation system.
Agnew, J., Bateman, H. & Thorp, S.J. 2013, 'Work, money, lifestyle: Plans of Australian retirees', JASSA, vol. 2013, no. 1, pp. 40-44.
Existing research shows that adjustment to retirement is correlated with pre-retirement planning. This study presents new insights into the retirement preparedness of Australians at the later stages of working life. Recent surveys of those approaching and entering retirement show that the extent of planning around exiting the workforce, financial management, bequest provision and activities during retirement vary greatly. We find that more than half of Australians in their 50s and 60s have not planned key aspects of retirement.
Silvennoinen, A. & Thorp, S.J. 2013, 'Financialization, crisis and commodity correlation dynamics', Journal of International Financial Markets, Institutions & Money, vol. 24, pp. 42-65.
View/Download from: Publisher's site
Stronger investor interest in commodities may create closer integration with conventional asset markets. We estimate sudden and gradual changes in correlation between stocks, bonds and commodity futures returns driven by observable financial variables and time, using double smooth transition conditional correlation (DSTCCGARCH) models. Most correlations begin the 1990s near zero but closer integration emerges around the early 2000s and reaches peaks during the recent crisis. Diversification benefits to investors across equity, bond and stock markets were significantly reduced. Increases in VIX and financial traders short open interest raise futures returns volatility for many commodities. Higher VIX also increases commodity returns correlation with equity returns for about half the pairs, indicating closer integration.
Bird, R., Liem, H. & Thorp, S.J. 2013, 'The tortoise and the hare: Risk premium versus alternative asset portfolios', Journal of Portfolio Management, vol. 39, no. 3, pp. 112-122.
View/Download from: Publisher's site
Does diversification using a basket of the most common alternative investments outperform diversification using low-cost, liquid risk premia? Investment banks have recently begun offering access to such risk premia at low cost. First, the authors confirm that alternative assets may reduce portfolio risk, based on historical experience. Second, they compare the risk-reduction benefits of alternative investments and risk premium portfolios out of sample, using equally weighted and least-risk optimized portfolios. They find that risk premia diversify more efficiently than do alternative asset portfolios. The authors suggest that an optimal portfolio combines the benefits of both risk premium and alternative asset portfolios, as some alternative assets (such as timber or managed futures) continue to provide exposure to unique sources of return.
Bateman, H., Eckert, C., Geweke, J., Louviere, J., Thorp, S. & Satchell, S. 2012, 'Financial Competence and Expectations Formation: Evidence from Australia', Economic Record, vol. 88, no. 280, pp. 39-63.
View/Download from: Publisher's site
We study the financial competence of Australian retirement savers using self-assessed and quantified measures. Responses to financial literacy questions show large variation and compare poorly with some international surveys. Basic and sophisticated financial literacy vary significantly with most demographics, self-assessed financial competence, income, superannuation accumulation and net worth. General numeracy scores are largely constant across gender, age, higher education and income. Financial competence also significantly affects expectations of stock market performance. Using a discrete choice model, we show that individuals with a higher understanding of risk, diversification and financial assets are more likely to assign a probability to future financial crises rather than expressing uncertainty. 2011 The Economic Society of Australia.
Thorp, S.J. 2012, 'Book review: Handbook of behavioral finance', Journal of Pension Economics and Finance, vol. 11, no. 1, pp. 148-150.
Bateman, H., Islam, T., Louviere, J.J., Satchell, S.E. & Thorp, S.J. 2011, 'Retirement Investor Risk Tolerance in Tranquil and Crisis Periods: Experimental Survey Evidence', Journal of Behavioral Finance, vol. 12, no. 4, pp. 201-218.
View/Download from: Publisher's site
The impact of the global financial crisis of 2008 and 2009 on private pension assets has been severe. Asset prices crashed on a scale not seen since the Great Depression of the 1930s. The OECD estimates that global assets accumulated to finance retirement fell by 20-25% over 2008. Ireland felt the greatest impact, where pension assets fell by around 35%, but the United States was close behind with an estimated decline of 25-30%, followed by falls of around 20% in Canada and Australia (Antolin & Stewart 2009). Individual pension accumulations felt the brunt of the impact: in the United States, the average defined contribution plan balance fell by 16%, from $31,800 in 2007 to $26,578 by mid 2009 (Copeland 2009).
Satchell, S. & Thorp, S.J. 2011, 'Uncertain survival and time discounting: Intertemporal consumption plans for family trusts', Journal of Population Economics, vol. 24, no. 1, pp. 239-266.
View/Download from: Publisher's site
We derive expressions for optimal consumption for family trusts with random wealth and uncertain survival. Using UK birth statistics and the theory of branching processes, we compute size and survival probabilities for single- and multiple-branch families. Survival for a single-branch family is approximated by a Pareto distribution and consumption policies exhibit decreasing discount rates, but multiple-branch families use non-monotonic discount rates. When trust distributions depend on the number of beneficiaries rather than the survival of the whole family unit, spending paths depend on expected membership and the elasticity of intertemporal substitution. We report examples of consumption paths for a range of family trusts with constant relative risk aversion preferences.
Dungey, M., Milunovich, G. & Thorp, S.J. 2010, 'Unobservable shocks as carriers of contagion', Journal of Banking and Finance, vol. 34, no. 5, pp. 1008-1021.
View/Download from: Publisher's site
We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses. To illustrate, we apply the method to data from the 19971998 Asian financial crisis which consists of a complicated set of interacting crises. We find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects.
Bateman, H., Louviere, J.J., Thorp, S.J., Islam, T. & Satchell, S. 2010, 'Investment decisions for retirement savings', Journal of Consumer Affairs, vol. 44, no. 3, pp. 463-482.
View/Download from: Publisher's site
We conducted a choice experiment to investigate whether retirement savers follow simple portfolio theory when choosing investments. We modeled experimental survey data on 693 participants using a scale-adjusted version of the latent class choice model. Results show that underlying variability in response was explained by age and risk profile score and that preferences varied with income and age. Younger individuals were conventionally risk averse, but older, higher-income individuals may react positively to both higher returns and increasing risk, when risk is presented as widening ranges of possible outcomes. Respondents tended to choose among a few similar investment options.
Bush, S.A., Menzies, G.D. & Thorp, S.J. 2009, 'An array of online teaching tools', Teaching Statistics, vol. 31, no. 1, pp. 17-20.
View/Download from: Publisher's site
The Internet offers a huge array of teaching resources for statistics. Here we present a selection of engaging Web-based tools, ranging from class surveys to individual simulation experiments.
Petrichev, K. & Thorp, S.J. 2008, 'The Private Value of Public Pensions', Insurance: Mathematics and Economics, vol. 42, no. 3, pp. 1138-1145.
View/Download from: Publisher's site
As individual retirement savings accounts replace public pensions and defined benefit schemes, more retirees will decumulate using commercial income streams rather than public or corporate annuities. Here we use an approximation to the retirement income problem [Huang, H., Milevsky, M.A., Wang, J., 2004. Ruined moments in your life: How good are the approximations? Insurance: Math. Econom. 34, 421447] to compute the cost of replicating a public real life annuity (the Australian Age Pension) using commercial decumulation products. We treat the public pension as a phased withdrawal plan, matching insurance and payment features, and back out the stochastic present value of the plan under an arbitrarily small ruin probability. To reproduce the pension payment with 99% certainty, a male retiree needs 3.6 times the current average retirement savings account balance, and a female retiree needs more than 10 times the average female account balance. At 95% certainty, required wealth falls by around 25%. We measure separately the impact of gender, investment strategy, retirement age and management fees on this valuation
Bateman, H. & Thorp, S.J. 2008, 'Choices and Constraints Over retirement Income Streams: Comparing Rules and Regulations', The Economic Record, vol. 84, no. Special, pp. 17-31.
View/Download from: Publisher's site
The new Simplified Superannuation regulations for Australian superannuation provide tax concessions to retirement income streams which comply with legislated minimum drawdown rules. We evaluate these new drawdown rules against four alternatives, including three formula-based `rules of thumb used by financial planners. We find that the new regulations are a substantial improvement on the previous rules for allocated pensions and, when compared with the formula-based rules, are a good compromise in terms of simplicity, adequacy and risk. We also find that welfare is lower for most individuals who follow the Simplified Superannuation rules compared with welfare under an optimal path or a simple fixed percentage drawdown rule, but that outcomes could be improved through a further simplification of the new rules.
Bateman, H. & Thorp, S.J. 2007, 'Decentralized investment management: An analysis of non-profit pension funds', Journal of Pension Economics and Finance, vol. 6, no. 1, pp. 21-44.
We investigate delegated investment management in private pension accounts using data from Australian accumulation (superannuation) funds. In Australian non-profit pension funds, trustees choose investment managers on behalf of members. We find that funds with many delegated managers have higher risk-adjusted returns than those with few. However funds with 13 or less specialized managers show no improvement over funds with a single diversified manager. All do worse than a benchmark portfolio of asset-class indices. Further, by using random selection to mimic the choices of an uninformed individual choosing from the same menu of delegate managers as used by trustees, we show that returns from pension funds with large numbers of trustee-selected managers compare favorably with returns from randomly selected, equally weighted portfolios. However this improvement falls off quickly for funds with fewer trustee-selected managers, or when randomly selected portfolios are also diversified across asset classes. Results indicate that an uninformed individual following a naive diversification strategy would have done as well as most trustee boards in this sample.
Thorp, S.J. & Milunovich, G. 2007, 'Symmetric versus asymmetric conditional covariance forecasts: Does it pay to switch?', Journal of Financial Research, vol. 30, no. 3, pp. 355-377.
Volatilities and correlations for equity markets rise more after negative returns shocks than after positive shocks. Allowing for these asymmetries in covariance forecasts decreases mean-variance portfolio risk and improves investor welfare. We compute optimal weights for international equity portfolios using predictions from asymmetric covariance forecasting models and a spectrum of expected returns. Investorswho are moderately risk averse, have longer rebalancing horizons, and hold U.S. equities benefit most and may be willing to pay around 100 basis points annually to switch from symmetric to asymmetric forecasts. Accounting for asymmetry in both variances and correlations significantly lowers realized portfolio risk.
Milunovich, G. & Thorp, S.J. 2007, 'Measuring equity market integration using uncorrelated information flows: Tokyo, London and New York', Journal of Multinational Financial Management, vol. 17, no. 4, pp. 275-289.
Equity markets do not pass all overnight information into prices instantly at the opening of trade. We adjust open-to-close return series for non-instantaneous information absorption and then use adjusted series to measure integration among three major equity markets. Because the adjusted daytime return series are uncorrelated, we can accurately measure the size, and identify the sources, of transmissions. Overnight news, as represented by foreign open-to-close returns, explains 13% of opening price variation (close-toopen returns) in NewYork, 14% in Tokyo and 30% in London. ForNewYork and Tokyo, the largest influences come from the market that trades immediately prior (London and New York respectively) whereas opening price variation in London is linked closer with New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetric effects.
Milunovich, G. & Thorp, S.J. 2006, 'Valuing volatility spillovers', Global Finance Journal, vol. 17, no. 1, pp. 1-22.
View/Download from: Publisher's site
We show that volatility spillovers are large enough to matter to investors. We demonstrate that standard deviations of returns to mean-variance portfolios of European equities fall by 11.5% at daily, weekly, and monthly rebalancing horizons when volatility spillovers are included in covariance forecasts. We estimate the conditional second moment matrix of (synchronized) daily index returns for the London, Frankfurt and Paris stock markets via two asymmetric dynamic conditional correlation models (A-DCC): the unrestricted model includes volatility spillovers and the restricted model does not. We combine covariance forecasts from the restricted and unrestricted models with a wide range of assumed returns relatives via a polar co-ordinates method, and compute out-of-sample realized portfolio returns and variances for testing. DieboldMariano tests confirm that most risk reductions are statistically significant. Stochastic dominance tests indicate that portfolios accounting for volatility spillover would be preferred by risk adverse agents.
Bateman, H. & Thorp, S.J. 2006, 'Evaluating the returns to delegated investment management: Australian accumulation funds', Journal of Investment Strategy, vol. -, no. -.
Thorp, S.J. & Milunovich, G. 2006, 'Information processing and measures of integration: New York, London and Tokyo (QFRC paper #177)', Quantitative Finance Research Centre Working Paper Series, vol. 177.
Thorp, S.J. 2005, 'That Courage is not Inconsistent with Caution: Currency Hedging for Superannuation Funds', The Economic Record, vol. 81, no. 252, pp. 38-50.
View/Download from: Publisher's site
Surveys of Australian retirement savings funds verify that most international bond holdings, but not equity holdings, have been hedged for currency risk. We compare the mean?variance efficiency of this practice with two alternatives: a conventional forward hedge and a selective hedge triggered by the sign of the interest differential. These strategies generate optimal allocations that stochastically dominate restricted equity hedging according to Barrett?Donald tests. Advantages of alternative hedging strategies remain when sample mean returns are replaced by forecasts. Selective hedging works best for equities; conventional hedging for bonds. Adding unhedged bonds does not improve outcomes.
Kingston, G. & Thorp, S.J. 2005, 'Annuitization and asset allocation with HARA utility', Journal of Pension Economics and Finance, vol. 4, no. 3, pp. 225-248.
Trevor, R. & Thorp, S.J. 1988, 'Var Forecasting Models Of The Australian Economy - A Preliminary-analysis', Australian Economic Papers, vol. 27, pp. 108-120.
View/Download from: Publisher's site
NA
Trevor, R.G. & Thorp, S.J. 1988, 'VAR forecasting models of the Australian economy: A preliminary analysis', Australian Economic Papers, vol. 27, no. SUPP, pp. 108-120.
Investigates whether extremely cheap and relatively simple vector autoregressive (VAR) models produce sensible forecasts of major Australian macroeconomic variables. Accuracy of ex-ante forecast produced by some representative VAR models; Comparison with other publicly available forecasts; Decisions about the structure of the model in VAR forecasting.

Other

Bateman, H., Eckert, C., Geweke, J., Louviere, J., Satchell, S. & Thorp, S. 2014, 'Financial competence, risk presentation and retirement portfolio preferences'.
Financial regulators are weighing up the effectiveness of different templates for communicating investment risk to retirement savers since welfare depends on comprehension of risk information. We compare nine standard risk presentations using a discrete choice experiment where subjects choose between three retirement accounts. Switching between graphical or textual presentations, or between formats that emphasize benchmarks rather than return ranges or values at risk, affects predicted choices more than large changes in underlying risk. Innumerate individuals are more susceptible to presentation, and those with weak basic financial literacy are insensitive to increasing risk levels, regardless of presentation. Presentation effects are moderated but not eliminated as financial literacy improves. 2013 Cambridge University Press.
Bateman, H., Eckert, C., Geweke, J., Louviere, J.J., Satchell, S.E. & Thorp, S.J. 2011, 'Financial Competence and Expectations Formation: Evidence from Australia'.
Silvennoinen, A. & Thorp, S.J. 2010, 'Financialization, crisis and commodity correlation dynamics', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 267 Abstract: We study bi-variate conditional volatility and correlation dynamics for individual commodity futures and financial assets from May 1990-July 2009 using DSTCC-GARCH (Silvennoinen and Terasvirta 2009). These models allow correlation to vary smoothly between extreme states via transition functions driven by indicators of market conditions. Expected stock volatility and money manager open interest in futures markets are relevant transition variables. Results point to increasing integration between commodities and financial markets. Higher commodity returns volatility is predicted by lower interest rates and corporate bond spreads, US dollar depreciations, higher expected stock volatility and financial traders open positions. We observe higher and more variable correlations between commodity futures and financial asset returns, particularly from mid-sample, often predicted by higher expected stock volatility. For many pairings, we observe a structural break in the conditional correlation processes from the late 1990s.
Bateman, H., Eckert, C., Geweke, J., Louviere, J.J., Satchell, S. & Thorp, S.J. 2010, 'Economic Rationality, Risk Presentation, and Retirement Portfolio Choice'.
Bateman, H. & Thorp, S.J. 2009, 'Choices and constraints over retirement income streams: Comparing rules and regulations', Discussion Paper Series, School of Economics, University of NSW.
Paper Number: 2007/29
Thorp, S.J., Hulley, H., McKibbin, R. & Pedersen, A. 2009, 'Means-tested income support, portfolio choice and decumulation in retirement', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 248 Abstract: We investigate the impact of means tested public income transfers on post-retirement decumulation and portfolio choice using theoretical simulations and panel data on Australian Age Pensioners. Means tested public pension payments in Australia have broad coverage and give insight into the incentive responsiveness of well-o, as well as poorer households. Via numerical solutions to a discrete time, fi?nite horizon dynamic programming problem, we simulate the optimal consumption and portfolio allocation strategies for a retired household subject to assets and income tests. Relative to benchmark, means tested households should optimally decumulate faster early in retirement, and choose more risky portfolios. Panel data tests on inferred wealth for pensioner households show evidence of more rapid spending early in retirement. However they also show that better-o households continue to accumulate, even when facing a steeper implicit tax rate on wealth than applies to poorer households. Wealthier households also hold riskier portfolios. Results from tests for Lorenz dominance of the panel wealth distribution show no decrease in wealth inequality over the ?five years of the study.
Thorp, S.J., Hulley, H., McKibbin, R. & Pedersen, A. 2009, 'Means-tested income support, portfolio choice and decumulation in retirement', Working Paper Series, Centre for Applied Macroeconomic Analysis.
Bateman, H., Louviere, J.J., Thorp, S.J. & Islam, T. 2009, 'Retirement investor risk tolerance when risk is range: Experimental survey evidence from tranquil and crisis periods', Working Paper, Centre for the Study of Choice, University of Technology, Sydney.
Working paper number: 09-003
Bateman, H., Louviere, J.J., Thorp, S.J., Islam, T. & Satchell, S. 2009, 'An experimental survey of investment decisions for retirement savings', Working Paper, Centre for the Study of Choice, University of Technology, Sydney.
Working paper number: 09-001
Dungey, M., Milunovich, G. & Thorp, S.J. 2008, 'Unobservable shocks as carriers of contagion: A dynamic analysis using identified structural GARCH', National Centre for Econometric Research.
Working paper number: 22 Abstract: Markets in financial crisis may experience heightened sensitivity to news from abroad and they may also spread turbulence into foreign markets, creating contagion. We use a structural GARCH model to separate and measure these two parts of crisis transmission. Unobservable structural shocks are named and linked to source markets using variance decompositions, allowing clearer interpretation of impulse response functions. Applying this method to data from the Asian crisis, we find significant contagion from Hong Kong to nearby markets but little heightened sensitivity. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crisis, whereas Indonesia's influence shrinks.
Menzies, G.D., Pratt, J., Thorp, S.J. & Docherty, P.T. 2008, 'Piloting a Peer Feedback Program in the Faculty of Business at UTS (154)', Working Paper Series.
This paper outlines the trial and development of a peer review program for teaching improvement in the Faculty of Business at the University of Technology, Sydney (UTS). It first explores some of the key issues in the purpose and design of peer review schemes. It agrees with a strong theme in the peer review literature that peer review is most effective when used for quality enhancement rather than quality assurance in the sense used by Lomas and Nicholls (2005). It also recognises the possibility of resistance from academic staff to the idea of peer review and scepticism about its usefulness. A methodology for the conduct of a pilot peer review scheme is outlined drawing on the work of Bingham and Ottewill (2001) and Puget and Schubert (2008) in which peer review is voluntary, confidential and reciprocal involving a mutual arrangement with a trusted colleague to observe each others teaching and to offer private constructive feedback within agreed parameters. The experience of participants in the pilot scheme is reported and observations made about both the process of peer review itself and of attempting to establish a peer review program in a Faculty not previously used to such methods of professional and educational development.
Satchell, S. & Thorp, S.J. 2008, 'Scenario analysis with recursive utility: Dynamic consumption plans for charitable endowments', Working Paper Series, Centre for Applied Maceoconomic Analysis, Australian National University.
Working Paper Number: 3/2008
Satchell, S. & Thorp, S.J. 2008, 'Discounting and consumption over an uncertain horizon: Draw-down plans for family trusts', Working Paper Series, Centre for Applied Macroeconomic Analysis, Australian National University.
Working Paper Number: 2/2008
Satchell, S.E. & Thorp, S.J. 2007, 'Scenario analysis with recursive utility: Dynamic consumption plans for charitable endowments', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Paper Number: 209
Satchell, S.E. & Thorp, S.J. 2007, 'Discounting and consumption over an uncertain horizon: Draw-down plans for family trusts', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 210 Abstract: Individuals, endowments and trusts face uncertain lifetimes. When the planning horizon of an entity is stochastic and Pareto distributed, hyperbolic discounting and time-varying consumption rates are optimal. We derive expressions for the optimal rate of consumption (draw-down) from wealth for family trusts facing positive probabilities of extinction at each generation. Using birth statistics for the UK, we compute family extinction probabilities and show that they are well-approximated by a Pareto distribution, hence family trusts will discount hyperbolically. Numerically optimised consumption paths for family trusts with CRRA preferences are decreasing but always higher than for infinitely-lived trusts.
Bateman, H. & Thorp, S.J. 2007, 'Choices and constraints over retirement income streams: Comparing rules and regulations', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 200 Abstract: The new Simplified Superannuation regulations for Australian superannuation provide tax concessions to retirement income streams which comply with legislated minimum drawdown rules. We evaluate these new drawdown rules against four alternatives, including three formula-based rules of thumb and the previous legislated minimum drawdown limits for allocated pensions. We find that the new regulations are a substantial improvement on the previous rules for allocated pensions and, when compared with the four formula-based rules, are a good compromise in terms of simplicity, adequacy and risk. We also find that welfare is lower for most individuals who follow the Simplified Superannuation compared with welfare under an optimal path or a simple fixed percentage drawdown rule, but that outcomes could be improved through a further simplification of the rules.
Petrichev, K. & Thorp, S.J. 2007, 'The private value of public pensions', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 211 Abstract: Individual retirement savings accounts are replacing or supplementing public basic pensions. However at decumulation, replacing the public pension with an equivalent private sector income stream may be costly. We value the Australian basic pension by calculating the wealth needed to generate an equivalent payment stream using commercial annuities or phased withdrawals, but still accounting for investment and longevity risks. At age 65, a retiree needs an accumulation of about 8.5 years earnings to match the public pension in real value and insurance features. Increasing management fees by 1% raises required wealth by about one year's earnings. Delaying retirement by 5 years lowers required wealth by about one half year's earnings. Phased withdrawals have money's worth ratios close to 0.5 suggesting that private replacement costs are high.
Bateman, H. & Thorp, S.J. 2007, 'Choices and constraints over retirement income streams: Comparing rules and regulations', Discussion Paper Series, Centre of Pensions and Superannuation, University of New South Wales.
Paper Number: 2007-1
Thorp, S.J., Kingston, G. & Bateman, H. 2007, 'Financial engineering for Australian annuitants', Discussion Paper Series, Centre for Pensions and Superannuation, University of NSW.
Paper Number: 7/2007
Bateman, H. & Thorp, S.J. 2006, 'Evaluating the returns to delegated invetsment management: Australian accumulation funds', Discussion Paper Series, Centre for Pensions and Superannuation, University of NSW.
Paper Number: 3/2006
Bateman, H. & Thorp, S.J. 2006, 'Decentralised investment management - An analysis of non profit pension funds', Discussion Paper Series, Centre for Pensions and Superannuation, University of NSW.
Paper Number: 4/2006
Bateman, H. & Thorp, S.J. 2005, 'Decentralised portfolio management: analysis of Australian accumulation funds (QFRC paper #161)'.
ISSN 1441-8010 www.business.uts.edu.au/qfrc/research/research_papers/rp161.pdf
Thorp, S.J. & Milunovich, G. 2005, 'Asymmetric risk and international porfolio choice (QFRC paper #160)'.
ISSN 1441-8010 www.business.uts.edu.au/qfrc/research/research_papers/rp161.pdf
Milunovich, G. & Thorp, S.J. 2005, 'Valuing volatility spillovers (Dept of Economics, Macquarie University, paper #612005)'.
Thorp, S.J. 2003, 'Investing internationally: Currency issues for superannuation funds', Discussion Paper Series, School of Economics, University of New South Wales.
Paper number: 2003/5
Stevens, G. & Thorp, S.J. 1989, 'The relationship between financial indicators and economic activity: Some further evidence', Research Discussion Paper, Reserve Bank of Australia.
Stevens, G., Bullock, M. & Thorp, S.J. 1988, 'Do financial aggregates lead activity? A preliminary analysis', Research Discussion Paper, Reserve Bank of Australia.
Paper Number: 8803 Abstract: It is frequently argued that an increase in the rate of growth of money or credit will lead to an increase in economic activity. This paper addresses this issue by looking at the lead/lag relationship between a range of financial aggregates and several measures of economic activity for Australia over the past decade. The paper concludes, on the basis of a range of tests, that monetary and credit aggregates tend to lag, or at best move contemporaneously with, economic activity. There is very little evidence that changes in the trend of money and credit portend future changes in economic activity.
Trevor, R.G. & Thorp, S.J. 1988, 'VAR forecasting models of the Australian economy:A preliminary analysis', Research Discussion Paper, Reserve Bank of Australia.
Abstract: Vector autoregressions (VARs) have been proposed as good forecasting models of macroeconomic variables. This paper presents three nave VAR models of the Australian economy estimated on quarterly data for fifteen variables to 1985(4). Their performance in 'forecasting' the calendar and financial year outcomes for 1986-87 (on and ex-ante basis) is compared with that of three sets of private sector forecasts, the 1986-87 Budget forecasts and the actual outcomes from the same period. In general, the VAR forecasts perform at least as well or better than comparable private sector forecasts. Each VAR model is estimated using a different method for allowing for trends in the data. The detrending procedure is an important determinant of the quality of forecasts, with the best forecasts produced by the two models which employ detrending processes appropriate for data which follow a random walk.
Blundell-Wignal, A. & Thorp, S.J. 1987, 'Money demand, own interest rates and deregulation', Research Discussion Paper, Reserve Bank of Australia.
Paper Number: 8703 Abstract: This paper reports estimation and testing of general lag formulations of demand for M1, M3 and broad money (BM) using new data for the own rates of return on money. Own rate effects have become more important in the recently deregulated financial environment. Own interest rates are found to be very important in explaining all three aggregates, although it is found that there is no contemporaneous interest rate effect on BM. BM appears to have the most stable econometric relationship with income and interest rates of the three aggregates, with M3 remaining unstable despite the introduction of own rates to the equation. Own rate effects may enhance the efficiency of achieving low-inflation objectives by controlling money supply growth. Excessive interest sensitivity is reduced by the presence of own rates, as is the possibility of real interest rate overkill. While the BM equation is found to have desirable properties, the econometric results are preliminary. The results certainly do not support BM as a target variable, since the lag structure is complex with respect to interest rates. Targeting BM would amount to little more than targeting nominal income directly, which requires knowledge of a wide range of influences on GDP.
Stevens, G., Thorp, S.J. & Anderson, J. 1987, 'The Australian demand function for money: Another look at stability', Research Discussion Paper, Reserve Bank of Australia.
Paper Number: 8701 Abstract: Opinion on the stability or otherwise of the demand for money in Australia can be characterised as divided. In this paper, several conventional single-equation models representing the demand for money are re-estimated with extended and revised data sets, and subjected to a range of stability tests. Some attention is paid to the possibility of heteroskedasticity in the residuals, which is important in the context of stability tests. Apart from testing for stability in a general sense, particular emphasis is given to the first half of the 1980's, where wide-ranging financing deregulation might be expected to affect relationships between the money stock, income and interest rates. The conclusion is that it is difficult to accept the proposition that the conventional equations have not been subject to instability. This is particularly so for M3; the evidence is more mixed in the case of M1.