Harmony,Justice, Confusion,and Conflict in Family Firms: Implications for Ethical Climate and the “Fredo Effect”

In this study, we analyze the financial performance and the managerial abilities of religious mutual fund managers, implementing a comparative analysis with conventional mutual funds. We use a broad sample, free of survivorship bias, of religious equity mutual funds from the US market, for the period from January 1994 to September 2010. We build a matched-pair conventional sample in order to compare the results obtained for both kinds of mutual fund managers. We analyze stock-picking and market timing abilities, topics widely neglected for the specific case of religious mutual fund managers. We also study style timing abilities. As far as we are aware, this aspect has not been studied previously for religious mutual fund managers. Our results indicate that religious mutual fund managers underperform both the market and their conventional counterparts. This result is driven by negative stock-picking ability which could be generated by excluding “Sin” stocks from their portfolios. Moreover, they are not able to time the market or any of the following styles: size, book-to-market, and momentum.     

A note on closet-indexing

Actively managed equity mutual funds with returns that are highly correlated with popular stock market indices like the S&P 500 often are accused of “closet-indexing”. We ask whether a trading strategy that shorts these funds and buys “true” index funds makes money for investors. Using a sample of high-R² growth-and-income funds from the CRSP survivor bias free mutual fund file, we document that the Sharpe ratio of this trading strategy and the market Sharpe ratio are statistically indistinguishable in the 1991–2000 sample period. The result is consistent with the view that widespread closet-indexing does not exist in the mutual fund industry.     

Gravitation Toward Prior Performance in Mutual Fund Advertisings: Do Consumer Investors' Processing Abilities Account for Biased Information Processing?

This study examines the cognitive processes involved in consumer investors' information processing of mutual fund characteristics. We tested whether consumer investors' limited processing abilities account for biased return perceptions, as reported in the literature. Consumer investors' processing abilities were manipulated by varying the duration of information exposure time to a mutual fund advertisement. Experimental results suggest that a longer time spent by consumer investors learning about mutual fund characteristics resulted in reduced reliance on prior fund performance as a heuristic cue, which in turn resulted in an unbiased processing of mutual fund characteristics. In contrast, when consumer investors spent less time learning about mutual fund characteristics, prior fund performance significantly affected subsequent return expectations and argument persuasiveness of the mutual fund advertisement. These findings suggest that disclaimers warning that past performance does not guarantee future results are ineffective when consumer investors have limited attention and lower processing abilities .     

Are socially responsible exchange-traded funds paying off in performance?

This study examines the Socially Responsible (SR) exchange-traded funds (ETFs) by comparing their risk-adjusted performance with a matched group of conventional ETFs in the U.S. equity market. In contrast to prior studies that focus on actively managed mutual funds, we find that the risk-adjusted returns of SR ETFs are significantly lower than those of conventional ETFs during the 2005–2020 period. Such underperformance is only observed in non-crisis periods but not in economic crisis periods (i.e., the 2020 pandemic recession and 2008 financial turmoil). We attribute the observed underperformance of SR ETFs during the non-crisis periods to their limited diversification of unsystematic risks resulting from various negative or positive screens employed in the funds. We also find that net fund flows of the SR ETFs are less sensitive to past negative performance than are conventional fund flows. Collectively, our findings suggest that, instead of seeking wealth maximization, socially conscious investors may choose SR ETFs to gain non-economic utility.     

Managers, investors, and crises: mutual fund strategies in emerging markets

We examine the trading strategies of mutual funds in emerging markets. We develop a method for disentangling the behavior of fund managers from that of underlying investors. For both managers and investors, we strongly reject the null hypothesis of no momentum trading: mutual funds systematically sell losers and buy winners. Selling current losers and buying current winners is stronger during crises, and equally strong for managers and investors. Selling past losers and buying past winners is stronger for managers. Managers and investors also practice contagion trading—they sell (buy) assets from one country when asset prices fall (rise) in another.     

SMEs and CSR Theory: Evidence and Implications from an Italian Perspective

This paper reviews the development of socially responsible investment (SRI) in the Spanish financial market. The year, 1997 saw the appearance in Spain of the first SRI mutual fund, but it was not until late 1999, that major Spanish fund managers offered SRI mutual funds on the retail market. The development of SRI in the Spanish financial market has not experienced the high levels of development seen in other European countries, such as France or Italy, where interest in SRI began during the same period. This paper presents an analysis of the impact of SRI mutual funds managed by Spanish fund managers comparing the evolution of managed assets and number of investors. We also analyse the investment strategies adopted by these funds, which mainly use negative screening criteria and the participation of non-governmental organisations as institutional investors. An analysis of the take up of socially responsible investment in the Spanish financial market shows majors deficits in this process. This is due to Spanish investors having limited sensitivity to social issues and knowledge of SRI, and a lack of development of SRI investment strategies, such as engagement or shareholder activism by fund managers. Furthermore, the take-up of SRI mutual funds in the Spanish financial market coincided with a fall in the stock market at the beginning of the 21st Century. We conclude with an analysis of the relationship between SRI and Corporate Social Responsibility (CSR).Josep M. Lozano is currently Professor in the Department of Social Sciences at ESADE, Universidad Ramon Llul-URL and Director of the school’s Institute for the Individual, Corporations and Society (IPES). Co-founder of ética, Economía y Dirección (Spanish branch of the European Business Ethics Network), member of the international Editorial Board of ‚Ethical Perspectives’ and member of the Business Ethics inter-faculty group of the Community of European Management Schools (CEMS). He has been a highly-commended runner-up in the European division of the Beyond Grey Pinstripes Faculty Pioneer Award. Author of Ethics and Organizations. Understanding Business Ethics as a Learning Process. Dordrecht: Kluwer, 2000.Laura Albareda is a Researcher at the Institute for the Individual, Corporations and Society (IPES), ESADE, Universidad Ramon Llull-URL. She is manager of the Observatory on Ethical, Ecological and Social Investment funds in Spain, an annual IPES publication on Socially Responsible Investment in Spain. Fields of research and academic interest are Corporate Social Responsibility, Business Ethics, Global Governance, Governments and Public Policies on CSR and Socially Responsible Investment.M. Rosario Balaguer is a Lecturer in the Department of Finance and Accounting at Universitat Jaume I. Research areas focus on finance-based analysis of Corporate Social Responsibility and Socially Responsible Investment, covering issues such as profitability, risk and performance. She has taken part in several national and international conferences and published a number of articles in this field.     

The Use and Abuse of Mutual Fund Expenses

Prior research shows that mutual fund investors are often aware of up-front charges like sales loads, but they are less mindful of annual operating expenses, even though both types of fees lower overall performance. This study documents the historical trend and recent abuse of annual mutual fund expenses. As the industry becomes more adept at segmenting customers by level of investment sophistication, we claim that load mutual fund companies take advantage of this ability and charge higher expenses to their target customer: the less-knowledgeable investor. No-load fund companies, which tend to attract the more sophisticated investor, offer lower expenses. For example, over 2000–2004 the average annual expense ratio of load equity funds was 50 basis points higher than no-load equity funds. We show evidence of this widening cost disparity since the early 1990s among new and existing equity, bond, and index funds. We also document a growing abuse of sales distribution or 12b-1 fees among funds that are closed to new investors, almost all of which are load funds. Thus, load fund investors are more susceptible to paying higher expenses and receiving lower returns over time. Todd Houge is an Assistant Professor of Finance at the University of Iowa. Jay Wellman is an Assistant Professor of Finance at Binghamton University.     

我国设立开放式基金对证券二级市场的影响分析

2001年是我国证券市场改革的关键一年,因为在加入WTO以后,国外资金将大量涌入我国的证券市场,这必将对我国幼稚的证券市场产生巨大的冲击。鉴于我国目前的投资者近90％都是个人投资者,证券市场监管部门在2000年就多次明确提出要积极培育机构投资者,并将超常规培育机构投资者列入议事日程,基金（开放式投资基金）是我国目前主要的机构投资者。然而,开放式基金的面市必将对二级市场产生重大的影响,这种影响关键在于开放式基金参与各方行为的理性程度,即基金管理人专家理财的理性投资策略、市场上投资者的投资与投机行为、监管部门的监管。     

Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations

Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.     

The Value Added by Trading Based on Valuation Criteria

We investigate the value added by active mutual fund management by examining a comprehensive database of monthly trades of equity mutual funds because understanding how managers add value for their clients is important in the current context of a growing fraction of individual investors delegating their portfolio management to professional managers. We find that the value added by trading based on valuation criteria outperform trading decisions motivated by other reasons such as liquidity and taxes. This finding is obtained using both the measures previously proposed by financial literature as well as some refinements proposed here to evaluate the role of mutual funds' cash level as well as the interdependence between buying and selling decisions. In addition, mutual funds that trade based on valuation criteria more frequently outperform funds that follow this type of trading occasionally. The results are consistent with the notion that active mutual funds on average fail to outperform passive benchmarks and only a subset of funds have skilled managers.     

发展我国期货投资基金研究

国际期货市场发展的历程表明,以机构投资者为主体的投资者结构是期货市场走向成熟的一个重要标志。而期货投资基金正是机构投资者中非常重要的一种组织形式。发展期货投资基金不但有利于解决我国期货市场规模小、流动性差的问题,同时对我国资本市场的持续、健康、稳定发展也将起到巨大的推动作用。发展期货投资基金已经成为整个期货业和资本市场梦寐以求的目标。     

Management structure and the performance of funds of mutual funds

A rapidly growing mutual fund category is funds of funds (FOFs) which invest in other mutual funds instead of individual securities. This study reports on FOFs' characteristics and performance relative to traditional equity mutual funds and finds that FOFs compare favorably. FOFs with identified managers outperform their unidentified counterparts, and FOFs that invest in-family outperform both traditional equity funds and those FOFs investing out-of-family. Finally, replicating FOFs' holdings can be prohibitively expensive since they commonly hold funds with high minimum initial investments, closed funds and/or funds that are restricted to a particular investor type.     

Private equity secondaries: Opening the liquidity tap

Private equity is an illiquid asset class. The extended holding period for private equity—averaging four to five years—attracts investors, as fund managers are able to avoid the volatility that negatively affects the public equities. However, the secondary market has emerged as a tool that enables limited partners in private equity funds to manage a private equity portfolio flexibly despite its intrinsic illiquidity. This article discusses in great detail the scope of secondary transactions, discussing how the subsegment has evolved over time from the straightforward purchase of limited partnership interest to the more elaborate transactions involving structural creativity and complex problem solving for sellers. It is concluded that the growth in secondaries brings liquidity to the asset class and thus makes private equity a more compelling investment proposition. As such, the secondary market will continue to be a key driver for growth of the private equity industry. © 2009 Wiley Periodicals, Inc.     

Investment Patterns of Informal Investors in the Alberta Private Equity Market*

This study identifies three main types of informal investors in private equity markets: relationship investors, opportunity‐based investors, and angel investors. We find evidence that the first two investor types are a major total source of capital and they prefer to invest smaller amounts close to home and in the context of existing relationships. With respect to angel investors, we find evidence of stratification in their desired investment amount which is consistent with a model where their investments evolve though a life cycle of investing. We also find evidence that changes to capital market regulations that allow for lower investment amounts by this type of investor increase the amount of capital available for early‐stage firms.     

Selective pump-and-dump: The manipulation of their top holdings by Chinese mutual funds around quarter-ends

Using data from 2009 to 2016, we reveal that Chinese mutual fund managers pump and dump some of their top holdings around quarter-ends. Our evidence suggests that the fund managers engage in the manipulation so as to either create a star fund for the fund family or increase their own compensation directly. Besides size and liquidity, the Chinese mutual fund managers also seem to choose some manipulation targets based on factors used in tactical allocation. Our main findings are robust under different regulatory regimes and various market trends.     

On the failure of mutual fund industry regulation

Mutual funds grant retail investors access to professional asset management and facilitate exposure to financial markets. The academic literature and regulators have traditionally focused on issues such as portfolio diversification, performance, liquidity, and management fees in attempts to analyze and improve market efficiency. Scarce attention has been paid to market risk management. There is unanimity on this issue throughout the world. The lack of regulatory attention creates a gap, which is partially covered by mutual fund rating agents and asset management analysts. Those agents base their ratings on various rating methodologies — which engenders a wide array of difficulties, especially for retail investors. We employ proprietary data on historic mutual fund ratings in Israel and show that retail investors do not necessarily benefit from this diversity of opinions. Furthermore, we find that the voluntary implementation of quantitative risk measurement techniques by certain mutual funds tends to be associated with fewer outflows and greater inflows in these funds. Interestingly, the application of (backward-looking) value-at-risk analysis is associated with fewer outflows, while (forward-looking) stress-testing techniques are associated with greater inflows. Given the similarity of mutual fund industry environments across the globe, our results have worldwide applicability.     

Publicly traded venture capital funds: implications for institutional “fund of funds” investors

Institutional investors supply the bulk of the funds which are used by venture capital investment firms in financing emerging growth companies. These investors typically place their funds in a number of venture capital firms, thus achieving diversification across a range of investment philosophy, geography, management, industry, investment life cycle stage and type of security. Essentially, each institutional investor manages a “fund of funds,” attempting through the principles of portfolio theory to reduce the risk of participating in the venture capital business while retaining the up-side potential which was the original source of attraction to the business. Because most venture capital investment firms are privately held limited partnerships, it is very difficult to measure risk adjusted rates of return on these funds on a continuous basis.In this paper, we use the set of twelve publicly traded venture capital firms as a proxy to develop insight regarding the risk reduction effect of investment in a portfolio of venture capital funds, i.e., a fund of funds. Measurements of weekly total returns for the shares of these funds are compared with similar returns on a set of comparably sized “maximum capital gain” mutual funds and the daily return of the S&P 500 Index. A comparison of returns on an individual fund basis, as well as a correlation of daily returns of these individual funds, were made. In order to adjust for any systematic bias resulting from the “thin market” characteristic of the securities of the firms being observed, the Scholes-Williams beta estimation technique was used to reduce the effects of nonsynchronous trading.The results indicate that superior returns are realized on such portfolios when compared with portfolios of growth-oriented mutual funds and with the S&P 500 Index. This is the case whether the portfolios are equally weighted (i.e., “naive”) or constructed to be mean-variant efficient, ex ante, according to the capital asset pricing model. When compared individually, more of the venture funds dominated the S&P Market Index than did the mutual funds and by much larger margins. When combined in portfolios, the venture capital funds demonstrated very low beta coefficients and very low covariance of returns among portfolio components when compared with portfolios of mutual funds. To aid in interpreting these results, we analyzed the discounts and premia from net asset value on the funds involved and compared them to Thompson's findings regarding the contribution of such differences to abnormal returns. We found that observed excess returns greatly exceed the level which would be explained by these differences.The implications of these results for the practitioner are significant. They essentially tell us that, while investment in individual venture capital deals is considered to have high risk relative to potential return, combinations of deals (i.e., venture capital portfolios) were shown to produce superior risk adjusted returns in the market place. Further, these results show that further combining these portfolios into larger portfolios (i.e., “funds of funds”) provides even greater excess returns over the market index, thus plausibly explaining the “fund of funds” approach to venture capital investment taken by many institutional investors.While the funds studied are relatively small and are either small business investment companies or business development companies, they serve as a useful proxy for the organized venture capital industry, despite the fact that the bulk of the funds in the industry are institutionally funded, private, closely held limited partnerships which do not trade continuously in an open market. These results demonstrate to investors the magnitude of the differences in risk adjusted total return between publicly traded venture capital funds and growth oriented mutual funds on an individual fund basis. They also demonstrate to investors the power of the “fund of funds” approach to institutional involvement in the venture capital business. Because such an approach produces better risk adjusted investment results for the institutional investor, it seems to justify a greater flow of capital into the business from more risk averse institutional investment sources. This may mean greater access to institutional funds for those seeking to form new venture capital funds. For entrepreneurs seeking venture capital funds for their young companies, it may also mean a lower potential cost of capital for the financing of business venturing. From the viewpoint of public policy makers interested in facilitating the funding of business venturing, it may provide insight regarding regulatory issues surrounding taxation and the barriers and incentives which affect venture capital investment.     

The "Ethics" of Ethical Investing

There appears to be an implicit assumption by those connected with the ethical investment movement (e.g., ethical investment firms, individual investors, social investment organizations, academia, and the media), that ethical investment is in fact ethical. This paper will attempt to challenge the notion that the ethical mutual fund industry, as currently taking place, is acting in an ethical manner. Ethical issues such as the transparency of the funds and advertising are discussed. Ethical mutual fund screens such as tobacco, alcohol, gambling, and the military are preliminarily examined to better determine whether they can actually be defined as "ethical" screens as opposed to merely social, political, or religious screens. A code of ethics for ethical investment is constructed by which ethical mutual fund firms can be audited for ethical compliance.     

Can Mutual Fund Investors Distinguish Good from Bad Managers?

Mutual fund flows respond significantly to the return gap, which captures information about unobserved actions of mutual funds and predicts future performance. The sensitivity of fund flows to the return gap is: (i) strong and positive; (ii) increasing with investor sophistication; (iii) highly nonlinear; and (iv) decreasing with the informativeness of past fund returns. On average, the response of investors to the return gap enhances their performance. Our findings suggest there is a sophisticated mass of investors who can distinguish good from bad managers using information that may not be directly inferred from standard performance indicators.     

MUTUAL FUND PORTFOLIO CHOICE IN THE PRESENCE OF DYNAMIC FLOWS

We analyze the implications of dynamic flows on a mutual fund's portfolio decisions. In our model, myopic investors dynamically allocate capital between a riskless asset and an actively managed fund which charges fraction‐of‐fund fees. The presence of dynamic flows induces “flow hedging” portfolio distortions on the part of the fund, even though investors are myopic. Our model predicts a positive relationship between a fund's proportional fee rate and its volatility. This is a consequence of higher‐fee funds holding more extreme equity positions. Although both the fund portfolio and investors' trading strategies depend on the proportional fee rate, the equilibrium value functions do not. Finally, we show that our results hold even if investors are allowed to directly trade some of the risky securities.