IRRC Institute Announces Two $10,000 Awards
for Best Research on Post-Modern Portfolio Theory

Research Findings on Fiduciary Duty and Ambiguity have Potential to Change How Institutions Invest

The Investor Responsibility Research Center (IRRC) Institute announced the first recipients of a new annual research competition that examines the interaction of the real economy with investment theory. A blue-ribbon panel of judges selected two papers - one practitioner and one academic - for the new IRRC Institute Research Award. The authors of each research paper received a $10,000 award.

Steve Lydenberg received the practitioner award for research entitled, Reason, Rationality and Fiduciary Duty. A 30-year veteran of the asset management industry, Lydenberg is the founding director of the Initiative for Responsible Investment at the Hauser Center for Nonprofit Organizations at Harvard University and partner with Strategic Vision for Domini Social Investments. The research examines the benefits of fiduciaries' use of thought termed "reasonable" as opposed to "rational" in making investment decisions. Reasonable fiduciaries understand the implications of investments decisions in relation to others and the real world, while the rational fiduciary consider only the impact in relation to the financial performance of their portfolios. The paper finds that an increasing number of institutional fiduciaries are uncomfortable with a purely rational approach, and are incorporating the reasonably oriented universal-owner, sustainability, and international-norms approaches into decision-making. The paper argues that a combination of reason and rationality - consideration of others and the norms of society as well as of self-interested advantage - is necessary for a comprehensive undertaking of fiduciary practice.

The academic award is for research entitled, Asset Pricing and Ambiguity: Empirical Evidence, co-authored by Professor Menachem Brenner and Dr. Yehuda Izhakian at New York University Stern School of Business. This research finds that stock prices are impacted by ambiguity, the unknown probabilities that generate risk. Ambiguity, known to academics as Knightian uncertainty, is distinct from risk, as that term is conventionally understood. The paper demonstrates that risk is positively correlated to the market equity risk premium while ambiguity tends to be negatively correlated. Thus, adding the ambiguity factor to asset pricing models has key implications for finance issues such as investment management, risk management and performance evaluation.

"The new IRRC Institute Research Award encourages research that integrates investment theory and the real world," said Jon Lukomnik, executive director of the Institute and award coordinator. "We are confident that the two winning papers serve as valuable tools for investors, policymakers, academia, and other stakeholders. In the coming weeks, we will announce details and dates for the 2013 competition," said Lukomnik.

Both papers are available at: http://www.irrcinstitute.org/projects.php and on the Social Sciences Research Network at http://www.ssrn.com

Biographies of the judges are available here: http://www.irrcinstitute.org/award.php?page=judges

ABOUT THE IRRC INSTITUTE: The IRRC Institute is a not-for-profit organization that provides thought leadership at the intersection of corporate responsibility and the informational needs of investors. More information is available at: http://www.irrcinstitute.org

IRRC AWARD CONTACT: Jon Lukomnik, 212-344-2424, jon@irrcinstitute.org