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.     

Playing by the rules: ethical criteria at an ethical investment fund

Although ethical investment is a growing phenonenon which attracts a signficant amount of media interest, relatively little has been written about the internal operations of ethical investment funds. Using a variety of sources, including interviews with a fund manager and participant observation at meetings of the fund's ethical advisory committee, this paper examines the decision making of one ethical unit trust operating in the United Kingdom. In particular, it describes the development of the ethical criteria and the ways in which their implementation was monitored. Several significant parallels between publicly stated ethical investment criteria and corporate codes of ethics are then discusssed.     

Ability parity model for optimal fund allocation: Evidence from China's mutual fund markets

We propose in this article a novel ability parity model for optimal fund allocation. Compared with the traditional portfolio selection methods which directly work on asset returns and/or risk (volatility), the proposed ability parity method focuses mainly on the allocation between the stock selection ability and market timing ability of fund managers, which essentially determines fund performance (Fama, 1972). Using the data of China's mutual fund markets, we find strong and robust evidence that the proposed ability parity model delivers significantly higher return, skewness, and Sharpe ratio than traditional models and the benchmark index, while having volatilities comparable with traditional models.     

Salience theory and mutual fund flows: Empirical evidence from China

Using a sample of Chinese mutual funds during 2004–2020, we provide empirical evidence on the salience theory, which argues that individuals' decision weights on risky asset choices are distorted in favor of salient payoffs. Specifically, we document robust and casual impacts of funds' salience theory values on their future flows. The impacts are not explained by investors' attention-driven purchases, funds' lottery-like features, or the characteristics of funds' underlying stocks. Further tests show that the impacts are larger for funds with more shares held by individual investors and are more pronounced when investor sentiment is higher.     

Managerial secrecy: An ethical examination

The paper studies the ethics of withholding information about an impending layoff and describes those situations in which managerial secrecy might be justified. It describes a layoff situation in which a manager has the latitude to decide what information to release and when, lists the reasons managers commonly give for withholding the information and analyzes each reason from a consequentialist and a Kantian perspective. The paper uses Sisela Bok's analyses of lying and secrecy to create the prima facie case against secrecy in the situation.Victor Pompa, is currently a management education consultant at Digtal Equipment Corporation, headquartered in Maynard, Massachusetts. He has 11 years of experience in the education divisions of high tech companies, both as manager and individual contributor. He holds a Bachelor' Degree in Liberal Arts from Colgate University as well as a Master of Arts in Educational Theory. He is currently pursuing a PhD in Human and Organization Development, specializing in Business Ethics, at the Fielding Institute, Santa Barbara California. The catalyst for promoting the author's interest in Business Ethics was readingMoral Mazes, the World of Corporate Managers and meeting the author, Robert Jackall.     

Financial flows to mexico: implications for foreign investors

The 1994–1995 Mexican peso crisis occurred with the presence there of a “new” financial force, namely nonbank private funds. Mexico's economic reforms have in recent years led to massive amounts of highly liquid (and volatile) foreign capital inflows. As the country further embraces market-based principles, long- and short-term capital will flow at an even larger scale across its border, subjecting providers as well as recipients to greater risks. This paper examines the trends in both the “traditional” as well as the “new” forms of capital inflows for the period 1981–1996. Our analysis should help the two sides of this issue: foreign investors to be better prepared in managing future economic challenges, and emerging economies—including several in Southeast Asia that suffered Mexican-style exchange-rate crises in 1997—to implement more appropriate policies, especially as they pertain to currency stability.     

Derivatives do affect mutual fund returns: Evidence from the financial crisis of 1998

Using a unique data set of detailed balance sheet information on mutual funds, we find that most mutual funds using derivatives do so to a very limited extent that has little discernable impact on returns. However, there exist two types of funds that make more extensive use of derivatives, global funds and specialized domestic equity funds. The risk and return characteristics of these two groups of funds are significantly different from funds employing derivatives sparingly or not at all. Fund managers time their use of derivatives in response to past returns. Evidence during the financial crisis of August 1998 supports the hypothesis that the effects of derivative use are most pronounced during the periods of extreme movement. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:629–658, 2011     

Believing that everyone else is less ethical: Implications for work behavior and ethics instruction

Studies consistently report that individuals believe they are far more ethical than co-workers, superiors, or managers in other firms. The present study confirms this finding when comparing undergraduate students' own ethical standards to their perceptions of the standards held by most managers or supervisors. By maintaining a holier than thou ethical perception, new and future managers might rationalize their unethical behavior as being necessary for success in an unethical world. A prisoner's dilemma type problem can be said to exist when choosing an unethical behavior becomes each player's dominant strategy and the interaction of dominant behaviors is Pareto inferior. Dispelling the holier than thou perception may encourage students to revise their personal behavior payoffs such that the collective benefits that emanate from ethical conduct are favored and the prisoner's dilemma problem is converted into a coordination problem. Thomas Tyson is Associate Professor of Accounting at St. John Fisher College. His articles have been published in a number of professional and academic accounting journals. Two of his Management Accounting publications received Certificate of Merit awards for outstanding character and excellence in contributing to the literature of management accounting.     

The ethical implications of corporate records management practices and some suggested ethical values for decisions

While the ethical implications of corporate actions have received increasing attention, one important area overlooked by both researchers and corporate codes of ethics is the significant ethical implications of corporate records management practices. This article discusses the operational and strategic purposes of modern corporate records management programs—including scorched earth programs which seek to reduce exposure to potential liability by eliminating documentary evidence from corporate files that could be used to establish culpability in future governmental investigations or in litigation by persons injured by corporate actions. As a first step toward developing relevant ethical guidelines and decision criteria for socially-responsible records management practices, the ethical values of freedom of choice and avoidance of harm are applied to various corporate decisions as to (1) which information should be retained as records and for how long, (2) subsequent disclosure or non-disclosure of that information and to whom, and (3) decisions as to when information in corporate records may properly be destroyed. John C. Ruhnka, Associate Professor of Legal Environment and Management at the University of Colorado at Denver, has written extensively on corporate obligations to disclose material adverse events and preliminary merger negotiations in the Harvard Business Review and Securities Regulation Law Journal. He has also written on design considerations for records management programs and legal and regulatory retention requirements that apply to business records in a series of articles in the Corporate Confidentiality and Disclosure Letter. Dr. Steven Weller is on the faculty of The National Judicial College in Reno, Nevada, and has written extensively on problems of court process and organizational behavior. He has previously written on The Effectiveness of Corporate Codes of Ethics in the Journal of Business Ethics.     

Market penetration strategies and the fee–performance relationship: the case of Spanish money mutual funds

This article shows that market penetration strategies are common practice during the product introduction stage in the money mutual funds in Spain. During this stage there is no relation between fees and performance because this strategy is optimal. In order to analyse this relationship during the other stages of the product life cycle, funds under three years old were omitted from the analysis. Among the remaining funds, those with the highest fees are found to present a higher gross return than the low-fee funds, although the difference is not statistically significant. Nevertheless, in terms of net returns, low-fee funds are observed to stochastically dominate high-fee funds for any risk-averse investor. These findings hold for any managerial skill level or segmentation by the mutual fund family type.     

Left-digit biases: Individual and institutional investors

This study examines the left-digit bias of individual and institutional investors using the microstructural data set from a highly liquid index futures market. Both investor groups exhibit excess buying after the ask falls with a tens-digit decrement, whereas excess selling (buying) is observed only for institutions (individuals) after the bid rises with a tens-digit increment. Such excess buying is generally pronounced when price uncertainty is high. Institutional excess selling is evident when uncertainty is low and immediately after the market opens. While both investor groups focus on cognitive reference points, our findings imply that investors heterogeneously respond to the bias and that individuals experience investment losses as they trade on the bias.     

Why and how do foreign institutional investors outperform domestic investors in futures trading: Evidence from Taiwan

A unique data set containing all transactions from the Taiwan Futures Exchange allows us to dissect the long-lasting outperformance of foreign institutional investors in this emerging market. We show that foreign institutional investors comprehensively outperform domestic investors in trade directions, submission types, trading counterparties, order sizes, and order aggressiveness. Although submitting passive orders increases the trading profits of each investor group significantly, particularly for foreign institutions, the most passive domestic trades still lose to the most aggressive foreign institutional trades. We suggest that information advantage plays a more important role than order submission strategy in foreign institutional investors’ superior performance.     

An examination of the relationship between ethical behavior,espoused ethical values and financial performance in the U.S. defense industry: 1988–1992

This paper tests the ethics-is-good-for-profits as well as the ethics-and-profits-are-joint-outcomes-of-good-management hypotheses in the context of the U.S. defense industry in the 1988–1992 period. Both ethical behaviors (defined and measured as the number and dollar cost of convictions for violations of civil and criminal law as well as reimbursement obligations arising under environmental statutes) and espoused ethical values (in the form of membership in the Defense Industry Initiative and average level of PAC contributions) are compared with measures of profitability for the defense-oriented business segments of sixty-two major U.S. defense contractors. From 1988 to 1992, the U.S. Defense Department gave these contractors an average of 65% of all prime contract awards over $25,000 to business firms for work in the U.S.We found statistically significant, positive correlations between (1) our two measures of espoused ethical values and (2) both measures of espoused ethical values and violative ethical acts. In other words, those contractors with worse ethics records were more likely to be members of the Defense Industry Initiative and give larger PAC contributions. However, we were unable to reject the null hypothesis of no correlation between either ethical behavior or espoused ethical values and profits. The public policy implications of these findings are discussed.Alan P. Mayer-Sommer is Associate Professor at Georgetown University's School of Business. His research has focused on the area of business-government relations.Alan Roshwalb serves as a statistician for a marketing research firm and has conducted research in statistical methods and issues in business.     

Economic rationality and ethical behaviour: ethical business between venality and sacrifice

This paper argues that economic rationality and ethical behavior cannot be reduced one to the other, thus casting doubt on the validity of assertions such as 'profit is ethical' or 'ethics pays'. In order to express ethical dilemmas in a way which opposes economic interest with ethical concerns, we propose a model of rational behavior that combines these two irreducible dimensions in an open but not arbitrary manner. Behaviors that are neither ethical nor profitable are considered irrational (non-arbitrariness). However, behaviors that are profitable but unethical, and behaviors that are ethical but not profitable, are all treated as rational (openness). Combining ethical concerns with economic interest, ethical business is in turn seen as an optimal form of rationality between venality and sacrifice. Because everyone prefers to communicate that they act ethically, ethical business remains ambiguous until some economic interest is actually sacrificed. We argue, however, that ethical business has an interest in demonstrating its consistency between communication and behavior by a transparent attitude. On the other hand, venal behaviors must remain confidential to hide the corresponding lack of consistency. This discursive approach based on transparency and confidentiality helps to further distinguish between ethical and unethical business behaviors.     

Foreign investors in Taiwan: Their roles and government perspectives

This article describes the financial liberalization process in Taiwan and evaluates the effects of foreign institutional investors on Taiwan's stock market. Gradual liberalization allowed Taiwan to reap the benefits while reducing the harmful impacts of foreign participation during the Asian financial crisis. Overall, the liberalization policies proved to be effective as the stock market has become more stable and efficient. Foreign institutional investors contribute significant growth to the Taiwan stock market, and will continue to play a sizeable role in its future development.     

Foreign institutional investors and dividend policy: Evidence from China

This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.     

The ethical and policy implications of profiling ‘vulnerable’ customers

In the shadow of the global financial crisis, the issue of the marketing of credit has become an increasing concern in the past 12 months. Outstanding personal debt in the UK currently stands at £1479 billion and is rising by £1 million every 10.6 min. In Australia, there is currently $44.6 billion worth of outstanding credit card debt, and in the US, $2596 billion was owed on credit cards in 2008. At present, the banking sector utilizes sophisticated research methods to profile consumers, including those who might be considered financially vulnerable. However, the policy frameworks in most industrialized countries do not account for this form of target marketing when considering how to protect vulnerable groups. This paper is an initial attempt to examine the different methods by which profiling is conducted and the policy implications of this sophisticated form of segmentation and targeting. We argue that current consumer policies are inadequate in protecting vulnerable consumers from these marketing techniques, and recent recommendations from the Federal Reserve Bank of the United States, and the Australian Law Reform Commission to allow banks and lenders to ‘pre‐screen’ potential customers will exacerbate personal debt levels, rather than reducing them.     

Effects of justice and utilitarianism on ethical decision making: a cross‐cultural examination of gender similarities and differences

This study investigates the relationship between intention to behave ethically and gender within the context of national culture. Using Reidenbach and Robin's measures of the ethical dimensions of justice and utilitarianism in a sample of business students from three different countries, we found that gender is significantly related to the respondents' intention to behave ethically. Women relied on both justice as well as utilitarianism when making moral decisions. By contrast, men relied only on justice, and did not rely on utilitarianism when faced with the same ethical issues. Further, women's intention to behave was contextual, significantly affected by two national culture dimensions (uncertainty avoidance and individualism), whereas men's decisions were more universal, and not related to national culture dimensions.     

Firm boundaries,incentives, and fund performance: Evidence from a private pension fund system

The private pension fund system in Turkey presents a unique institutional structure where bank holding companies can own both private pension companies and asset management firms. More often than not, pension companies delegate their operational mandates to the asset management arm of the same bank. This practice exposes the retail investor to a double agency problem and raises questions about conflicts of interest and fiduciary duty. Our analysis reveals that the funds set up and managed under the same bank holding company perform worse on a risk-adjusted basis than the funds with an arm's length relationship between the pension company and the asset manager. We show that this relative underperformance is not simply a bank effect; bank-affiliated pension companies and asset managers do just as well, if not better than their peers, when they are not operating under the same roof. Unfortunately, this inefficient institutional structure is not eliminated by market discipline because these funds attract more flows from retail investors, and the underperformance is not discernible in raw returns.