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Since Mossin(1968), it has long been recognized that insurance is an inferior good within the decreasing absolute risk aversion. The purpose of this paper is to analyze, based on Mossin(1968), the wealth effects on insured’s optimal loss portfolio and asset portfolio, using a general expected utility maximization model. Our main results can be summarized as follows: In particular, if an utility function exhibits DARA, an increase in initial wealth reduces the optimal level of insurance and deteriorates the riskiness of loss portfolio, and so insured’s total risk-taking in the final asset portfolio would in fact increase. However, the certainty equivalent level as well as the mean value of asset portfolio is improved more than an increase in initial wealth due to the saving of insurance loading. The additional results for the case of CARA and IARA are also provided.

The objective of this paper is to investigate the competitions among Korean life insurance companies, using an endogenous timing game in the presence of asymmetric externalities. This application is appropriate, since Korean life insurance market confronts various types of risks as the market is liberalized, and different types of companies, which can be categorized as large size, small size, and foreign companies, are competing one another. Our endogenous timing game model provides two main results. First, the unique subgame perfect Nash equilibrium outcome of the Cournot-type production volume competition is that the small firms become leaders endogenously due to asymmetric externalities. Second, the unique subgame perfect Nash equilibrium outcome of the Bertrand-type price competition game is that big firms become leaders.

This paper analyzes the determinants of insurance demand for selected developed countries and Korea using Panel estimation methods or OLS methods. From the empirical results of the paper, we find some differences between the effects of the determinants in selected developed countries and those in korea. In the case of life insurance industry, demand for insurance depends on expected inflation rates, real interest rates, political rights, financial market development, and the price of insurance in developed countries, while it relies on permanent income, old population ratios, political rights, and financial market development in Korea. On the other hand, in the non-life insurance industry, demand for insurance is significantly related to permanent income, real interest rates, political rights, urbanization, and financial market development in developed countries, and it has much to do with permanent income, expected inflation rates, real interest rates, and financial market development in Korea. The biggest difference, in developed countries, between life insurance industry and non-life insurance industry arises from the empirical results that expected inflation rates affects only the demand for life insurance and permanent income influences only the demand for non-life insurance. We might attribute the discrepancy in the effects of economic factors such as expected inflation rates and rel interest rates between developed countries and Korea to the short time series of korean data.

This paper shows that the persistence of negative swap spread in Korea is partly attributed to the lack of arbitrage trading which may counteract the negative swap spread, using Threshold Autoregressive model. However, according to the empirical test, the negative swap spread is not the proof that there is no market efficiency in Korean bond and interest rate swap market. Rather, it may be inferred that the transaction cost or some constraints against arbitrage trading set the limit to the arbitrage trading so that it could not be executed fully enough to decrease the negative swap spread. This paper suggests that the government should advance the market system as well as deregulate the bond market for enhancing the market capabilities to correct the bias from outside shocks.

Using panel data from 62 developed and developing countries, this paper empirically examines how economic contractions spread across countries. In particular, we define contraction episodes in GDP, domestic credit, and stock prices and investigate synchronization of those events among economically related countries. Our findings are as follows. First, fluctuations in GDP, domestic credit, and stock prices tend to coincide among countries that are linked through international trade and finance. Second, the comovement is more evident in contractions than expansions. Third, perhaps because of the recent trend of globalization, the international transmission of contractions is more clearly observed in the post-1997 years. Fourth, while the trade linkage is most important in overall transmission of contractions, financial contractions in advanced economies appear to spread to developing economies mainly through financial linkages.

This paper examines the labor force activity of workers aged 55~59 and 60~64 in response to the change of the retirement earnings test in 2006. We use the first and the second waves of Korean Retirement and Income Study that covers the period from 2 years before to 1 years after the rise of the income-threshold. Using a Difference-in-Difference method, we find that its change reduce labor supply and earnings of aged 55~59, especially female. But we can’t find the effects on aged 60~64. As a result, we recommend that the income-threshold over aged 55~59 need to be lowered in order to encourage a labor incentive and guarantee income security.

An income deduction for public or private pension contribution increases disposable income. On the other hand, it also makes an income redistribution worse. An empirical analysis shows how social welfare can be changed before and after the income deduction for pension contribution using social welfare function(SW=μβ(1-G)). According to the empirical results, the level of social welfare improvement depends on the value of the parameter(β). For example, social welfare is more improved with β=1/2 or β=1 than β=0. In other words, positive effects on the improvement in income from the income deduction are slightly larger than the negative effects on equality (represented by(1-G)). That is, the total improvement of social-welfare was less than one percent due to the tradeoff. The social welfare improved more in one-income family than dual-income family. It also improved as the income increased. Consequently, it implies that different level of the income deduction based on income brackets may be necessary in that higher income group can be relatively better off from the income deduction.

Mutual fund is one of the most popular investment vehicles in Korea. So far, research on mutual fund investment has been mainly conducted at macro level with macro data on market trends, national accounts, and industry outlook. Not many research has dealt with mutual fund investment decision making at individual or household level. The purpose of this research is to examine household mutual fund investment behavior using the [2007 Investor Survey] conducted by Korea Investors Education Foundation. Especially, this research compares those who invest in mutual funds by Dollar Cost Averaging (DCA) method and those who utilize Lump Sum (LS) method. In addition, this research compares conservative investors and aggressive investors among the DCA investors. The results showed that the DCA investors have different demographic, socioeconomic, and psychographic characteristics from the LS investors. Those who younger tend to invest in mutual funds with DCA methods while those who older tend to use LS method. Those who has higher levels of household assets tend to use LS method. Among psychographic characteristics, investment horizon, expectations on future income, and money attitudes were different between DCA investors and LS investors. The results from the logistic regression showed those who are younger, female, have jobs, and have lower levels of household assets were more likely to be DCA investors than LS investors when other factors are equal. Among the DCA investors, conservative investors have different psychographic characteristics from aggressive investors. Especially the financial risk tolerance level were different between the two groups. Conservative investors have lower levels of financial risk tolerance than aggressive investors. The results from this research could provide practical implications for financial professionals.