Mutual Fund Family Size and Mutual Fund Performance: The Role of Regulatory Changes

We examine whether the previously documented positive association between fund family size and fund performance is affected by significant regulatory changes (i.e., Regulation Fair Disclosure (Reg FD), the Global Settlement (GS), and increased scrutiny as a result of trading scandals) that have occurred in the last decade. Using Reg FD as a beginning point for these structural changes, we find that, while fund family size was positively associated with fund performance in the period prior to the regulatory changes, this advantage is significantly weaker in the period subsequent to the regulatory changes. Consistent with the weakened advantage of fund family size in fund performance, we find that the greater stock‐picking skill of larger fund families, measured using the earnings announcement returns of the stocks they trade, also weakened subsequent to the regulatory changes. Using narrower event windows around the regulatory changes, we find that the previously documented superior return of large fund families was partly attributable to selective disclosure. We also find that fund families implicated in the trading scandals experienced a decline in their performance during the scandal period. Finally, we examine the role of large investment banks in providing an advantage to large fund families. Family size was positively associated with the extent to which funds traded in the same direction as forecast revisions by analysts from large investment banks in the period prior to Reg FD and the GS and this association declined significantly after the two regulatory events.     

Backwardation in Oil Futures Markets: Theory and Empirical Evidence

Oil futures prices are often below spot prices. This phenomenon, known as strong backwardation, is inconsistent with Hotelling's theory under certainty that the net price of an exhaustible resource rises over time at the rate of interest. We introduce uncertainty and characterize oil wells as call options. We show that (1) production occurs only if discounted futures are below spot prices, (2) production is non-increasing in the riskiness of future prices, and (3) strong backwardation emerges if the riskiness of future prices is sufficiently high. The empirical analysis indicates that U.S. oil production is inversely related and backwardation is directly related to implied volatility.     

News and Business Cycles in Open Economies

We study the effects of news about future total factor productivity (TFP) in a small open economy. We show that an open‐economy version of the neoclassical model produces a recession in response to good news about future TFP. We propose an open‐economy model that generates comovement in response to TFP news. The key elements of our model are a weak short‐run wealth effect on the labor supply and adjustment costs to labor and investment. We show that our model also generates comovement in response to news about future investment‐specific technical change and to “sudden stops.”