Performance persistence of fixed income mutual funds

The “winner-winner, winner-loser, gone” methodology allows tests for short-term performance persistence for government and corporate fixed income mutual funds from 1990 to 1999. Persistence occurs when “winner” (loser) funds remain “winner” (loser) funds. If intermediate-term (long-term) bond returns are higher than long-term (intermediate-term) bond returns for successive years, the z-statistic is positive. Persistence is negative in the opposite case, and the pattern holds for longer lag periods. Statistical significance and consistency between the sign of persistence and bond returns indicates persistent returns on bond funds, but the nature of persistence is driven by changes in interest rates. The authors would like to acknowledge the research assistance of Michael Serra and Michael Wieczorek. This research was supported in part by the McDonough School of Business and the Capital Markets Research Center at Georgetown University.     

Emerging market mutual fund performance: Evidence for Poland

This paper provides evidence on the performance of mutual funds in a prominent emerging market; Poland. Studying an emerging market provides an excellent opportunity to test whether the consensus on the inability of mutual funds in developed and highly efficient markets to beat the market, also holds in less efficient markets. While the weaknesses of legal institutions and underdeveloped capital markets in emerging countries could negatively contribute to performance, a certain level of market inefficiency might also enable fund managers to successfully apply security selection and therefore beat the market. This paper presents an overview of the Polish mutual fund industry and investigates mutual fund performance using a survivorship bias controlled sample of 140 funds. The latter is done using the Carhart (1997) 4-factor asset-pricing model. In addition, we investigate whether Polish fund managers exhibit “hot hands”, persistence in performance. Finally the influence of fund characteristics on risk-adjusted performance is considered. Our overall results suggest that Polish mutual funds on average are not able to add value, as indicated by their negative net alphas. Interestingly, domestic funds outperform internationally investing funds, which points at informational advantages of local over foreign investors. Finally, we detect strong persistence in mean returns up to 1 year. It is striking that “winning” funds are able to significantly beat the market, based on their significantly positive alpha's. These results deviate from studies on developed markets that conclude that even past winners are not able to significantly beat the market.     

Mutual fund managers: Does longevity imply expertise?

We analyze the performance of 1,042 mutual funds from 1986 to 1995 to measure the relationship between manager tenure and performance. Funds whose managers' have at least ten years tenure do not generate significantly higher excess returns than funds with less experienced managers. The excess returns of the best managers are not greater than those of their less experienced colleagues. Regardless of tenure, managers producing positive risk adjusted returns for three years are not likely to repeat their performance in subsequent periods. Our results provide further evidence that tenure should not be a factor in selecting mutual funds.     

Does the Henry George Theorem Provide a Practical Guide to Optimal City Size?

A bstract .   The spatial distribution of economic activity is determined by a balancing of increasing and decreasing returns to scale activities. The Henry George Theorem states roughly that, if economic activity is efficiently organized over a "large" space, aggregate land rents equal the aggregate losses from the decreasing returns to scale activities. Kanemoto, Ohkawara, and Suzuki have tentatively applied the Henry George Theorem to investigate whether Tokyo has too large a population. This paper has two aims. The first is to explore the Theorem and its generality; the second is to examine whether it provides a promising conceptual foundation for estimating whether particular cities are over- or underpopulated.     

Do actively managed mutual funds exploit stock market mispricing?

Constructing a proxy for mispricing with 15 well-known stock market anomalies, we examine whether actively managed mutual funds exploit mispricing. We find that, in the aggregate, mutual funds overweight overvalued stocks and underweight undervalued stocks relative to a passive benchmark, and this tendency is explained by the ill-motivated trades of agency-prone fund managers. In addition, we find that mutual funds with the highest weights in undervalued stocks outperform those with the highest weights in overvalued stocks by an annualized three-factor alpha of 2.12% (t = 2.38), implying that slanting portfolios based on our proxy helps mutual funds improve performance.     

An error-correction model of the demand for equity mutual funds in the U.S. 1973–1994

The purpose of this paper is to estimate an error-correction model of the U.S. demand for equity mutual funds. Using annual data for the period 1973–1994, this study finds that changes in the demand for equity mutual funds have been significantly influenced by the changes in the rate of return on equity mutual funds and savings deposits, as well as by the growth in income over the long run. The authors would like to thank an anonymous referee of this journal for many useful comments and suggestions.     

Investor sentiment and country exchange traded funds: Does economic freedom matter?

Using unbalanced panel data of 27 iShares MSCI country-specific exchange traded funds (ETFs) over the period 1996–2014, this paper applies quantile regression to examine the impacts of global, foreign, and U.S. investor sentiments on the returns of the ETFs traded in the U.S. markets. We further investigate whether a country’s economic freedom affects the relationship between investor sentiments and ETF returns. We find that ETF returns are strongly determined by investor sentiments and the ETF expense ratio. The quantile regression approach reveals that high-return ETFs are positively sensitive to changes in global sentiment (measured by market turnover, VIX, U.S. federal funds rate), foreign sentiment (measured by current account balance, inflation, market turnover, public debt), U.S. sentiment, currency exchange ratio, and expense ratio, while negatively influenced by economic freedom and Asian proxy. The effects of VIX and foreign inflation are a reversal; that is, returns from lower (higher) quantiles have a negative (positive) relation with VIX and foreign inflation. Not all components of economic freedom affect returns equally.     

The role of mutual funds in the sustainable energy sector

The integration of renewable energy criteria in mutual fund investment decisions could channel private resources into the funding of environmentally related projects implemented by firms contributing to sustainable development. This paper examines the performance of European renewable energy funds that invest globally by comparing their risk‐adjusted returns with those achieved by black energy and conventional mutual funds. It uses Carhart's model on a sample of 81 renewable energy funds, 125 black energy funds, and 4,337 conventional mutual funds. The results indicate that 32.1% of renewable mutual funds—most of which adopt energy producers, renewable energy technology, and energy efficiency‐focused criteria—perform significantly better than the S&P Clean Energy market benchmark, this percentage being affected by the different states of the economy. However, none of them are able to beat the fossil fuel energy (S&P Global 1200 Energy Index) or conventional market benchmarks (S&P Global 1200 Index). Furthermore, 37.04% of renewable energy funds significantly underperform the S&P Global 1200 benchmark. Therefore, the investment in renewable energy funds has a financial cost for investors in relation to conventional fund investors.     

Load and no-load mutual fund dynamics during the 1987 market crash: A stochastic dominance analysis

Using a large sample of equity mutual fund returns, we compare performance of load and no-load funds during the 1987 crash. Differences in return distributions, particularly in the higher moments when the market was under stress, suggest a greater use of portfolio insurance by no-load fund managers. Using stochastic dominance, we find that load and no-load funds performed equally well before the crash. No-load returns dominated load fund returns during the crash. Load fund returns dominate after the crash. Over the entire month, no-load funds dominate. We attribute this to investor behavior motivated by the lack of a front-end load.     

Finding Meaning in Labor’s “Perfect Storm”: Lessons from the 1981 PATCO Strike

Attention is given to four constructive lessons in employee relations that can be drawn from the 1981 PATCO strike of our traffic controllers. First, separate truth from fiction in a strike’s record and alleged impact. Second, learn the shortcomings of one party of an organization. Third, learn that the “new employee” is best managed by a mix of mutual respect, consideration, and flexibility. Finally, learn that radical organizational change always remains possible, but only if there is first a major overhaul of top leadership.     

Robust performance measures for high yield bond funds

We examine performance measures for high yield bond mutual funds, which are a considerable percentage of taxable bond investments, but have not been widely studied. High yield funds exhibit persistence in their monthly returns, so we calculate Sharpe ratios using methods that incorporate the serial correlation of returns. We find that high yield fund rankings using raw returns and conventionally calculated Sharpe ratios are different from those using trailing standard deviations and robust standard errors. High yield fund rankings based on robust Sharpe ratios also differ from those computed using multi-index Jensen's alphas and information ratios. When measured by risk-adjusted returns, high yield bond fund managers do not add much value.     

Net selectivity revisited: An extension

In this critique of Kochman and Badarinathi's study (1993) of net selectivity, mutual funds are not found to have a return distribution exhibiting limited semivariance when monthly return data are used. Several funds are overrated, however, in the sense that they have negative semivariance-adjusted excess returns, despite having positive beta-adjusted excess returns. Similar results are obtained using the Standard and Poor's 500 Index, which was employed by Kochman and Badarinathi, and the Wilshire 5000.     

Recent evidence on the short-term and long-term performance persistence of emerging-market mutual fund returns

This paper analyzes the performance persistence of US-based emerging-market mutual funds. We use a sample of 275 actively managed funds between July 1989 and December 2020 and regress their returns on emerging-market benchmark portfolios. On average, the funds had a significant negative alpha. Contrary to some earlier evidence, we document that the short-term consistency is entirely driven by losses of underperforming funds. The return spread between the short-term winners and losers generates a significant positive alpha that can be fully explained by the momentum in emerging-market stocks. We find no evidence of any long-term regularities. Our findings show that the observed funds exhibit very similar behavior to their developed-market counterparts and may contribute to resolving some inconsistencies in the earlier results.     

The effect of rule 12b-1 on bond fund expense ratios

This paper presents empirical evidence that bond mutual funds which have adopted the use of 12b-1 fees have not achieved the goal of lowering expense ratios. Using a model specific to bond funds, as opposed to generic models used in previous studies on equity funds, the analysis confirms that the 12b-1 fee is an additional cost borne by shareholders of the fund without any additional benefit. However, this cost as a percent of the net asset value of the fund has decreased from 1991 through 1994. This reduction coincides with the submission of a proposed rule change by the National Association of Security Dealers concerning maximum sales charges imposed by mutual funds on December 28, 1990 and the implementation of limits on 12b-1 fees which became effective in July of 1993.     

Threshold effect of scale and skill in active mutual fund management

In this paper, we apply threshold estimation techniques to study the size-performance relationship in the US mutual fund industry. Existing studies have found diseconomies of scale, and we add our contribution to this by considering possible non-linear decreasing returns to scale caused by fund age and manager tenure. We find significant threshold effects of both fund age and manager tenure at approximately three to four years in the size-performance relationship. Compared with younger funds, older funds have more severe decreasing returns to scale as the industry size increases.     

Firm efficiency and stock returns

In this paper, we investigate the role of firm efficiency in asset pricing using a sample of US publicly listed companies for the period 1988–2007. We employ non-parametric data envelopment analysis (DEA) on various input/output combinations, focusing on sales and market value as output measures in the construction of the frontier technologies. Using these performance measures, we examine whether efficient firms perform differently from inefficient firms following standard financial analysis procedures. First, we employ performance attribution regressions, by forming portfolios based on efficiency scores and tracking the performance of the various portfolios over time. Second, we perform cross-sectional/panel regressions to determine whether firm efficiency indeed has explanatory power for the cross-section of stock returns. Our results suggest that firm efficiency plays an important role in asset pricing and that efficient firms significantly outperform inefficient firms even after controlling for known risk factors.     

Mutual fund selection and performance persistence in 401(k) Plans

We examine how plan sponsors/providers select mutual funds for 401(k) plans and whether performance persistence exists for mutual funds listed in 401(k) plans. Using a hand-collected data set of 401(k) investment options, we find that plan sponsors are likely to choose actively managed growth funds, including aggressive growth funds and long-term growth funds. Furthermore, more than 50% of the mutual funds in our sample of 401(k) plans are selected from the top 10 fund families in terms of total net assets. On average, plan sponsors select funds that outperform the funds with the same investment objective and that have low expense ratios. The performance of mutual funds in 401(k) plans only persists in a short horizon. Our analysis indicates that the menus of 401(k) investment options do not exhibit a signaling effect, indicating that investment options in 401(k) plans do not supply useful information about the future performance of mutual funds for investors in selecting mutual funds.     

基于价格预测能力的基金羊群效应模型与算例分析

本文总结了现有羊群效应实证模型的不足,基于基金价格预测能力,构建了可以更加精确地判断每只基金的投资决策作为一种信号是否会对其他基金投资决策带来影响的实证模型。分析结果显示,大多数基金都能够产生明显的羊群效应。本文在模型建立过程中还提出了新的基金评价思路,为更加细致的羊群效应实证研究方法提供借鉴。     

开放式基金的资金流量对投资组合的影响分析

对单个基金来说,基金流量会影响到投资者的收益,其中的途径就是通过影响基金的投资组合,文章实证检验了由基金资金流入或流出引发的基金资产组合交易变动的程度,同时验证了基金“流动性动机交易”在中国基金市场上确实存在。