The Performance of Actively Managed International Mutual Funds

International mutual funds allow individual investors to diversify abroad at a reasonable cost. This paper tests whether international funds that actively engage in country and security selection outperform passive global benchmarks. We apply a mean-variance efficiency test that incorporates the practical prohibition against short sales of open-end mutual funds. Our tests reject the efficiency of the world equity market portfolio over the sample period, and our funds as a group outperform the inefficient world index. However, we find no evidence of security selectivity ability using a 12-country benchmark. We do find that active international funds provide global diversification benefits. Tests using the Positive Period Weight (PPW) measure of Grinblatt and Titman (1989), which is robust to nonlinearity in fund and benchmark returns, yield similar results.     

The Role of Executive Stock Options in On‐Market Share Buybacks*

The increasing use of on‐market buyback programs in Australia may not be fully explained by the typical motivations of information signaling and free cash flows offered by previous researchers. For some firms at least, management may believe the shares are overvalued. It is in this context that we examine whether managers of firms with high levels of executive stock options have an incentive to initiate buyback programs. It has been argued that managers may be motivated to undertake on‐market buyback programs in order to neutralize the dilution of earnings per share caused by their stock options, rather than for signaling purposes. Our findings are consistent with this argument because we find that the higher the proportion of executive stock options outstanding the more likely it is for firms to undertake larger on‐market buyback programs. Overall our results indicate that the existence of executive stock options influences managers' decision to implement on‐market buyback programs but that it is not the only factor that managers take into consideration.