The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis
American College of Trust and Estate Counsel Journal, Vol. 35, p. 314, 2010
19 Pages Posted: 29 Jan 2011 Last revised: 10 Mar 2011
Date Written: Spring 2010
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: Suggested Citation