Performance comparison between exchange-traded funds and closed-end country funds

The objective of this study is to compare the risk and return performance of exchange-traded funds (ETFs) available for foreign markets and closed-end country funds. We utilize 29 closed-end country funds (CEFs) for 14 countries over the sample period from April 1996 to December 2001. The performance proxies are mean returns and risk-adjusted returns. Results indicate that ETFs exhibit higher mean returns and higher Sharpe ratios than foreign closed-end funds, while CEFs exhibit negative alphas. This indicates that a passive investment strategy utilizing ETFs may be superior to an active investment strategy using CEFs. The findings reported here offer some insight on the relative advantages of each type of investment. Specifically, there may be some potential for additional types of ETFs that offer higher risk-adjusted returns than closed-end funds. Such ETFs may be able to offer higher risk-adjusted returns as part of an internationally diversified portfolio.     

The Performance Persistence of Closed-End Funds

The purpose of this study is to extend the research on mutual fund performance persistence to net asset value and market price performance of domestic closed‐end funds. While research has assessed the performance persistence of open‐end mutual funds, it has not assessed the performance persistence of closed‐end funds. Yet, the unique characteristics of closed‐end funds allow stronger arguments for their persistence than the arguments previously submitted for open‐end mutual funds. The results show evidence for risk‐adjusted performance persistence.     

Why Does Performance Persistence Vary Among Closed-End Funds?

This study extends the research on closed-end fund performance persistence by investigating whether the persistence of both net asset value (NAV) and market price returns of U.S. registered closed-end funds is related to various fund characteristics. The sample consists of 505 closed-end funds, which are investigated over the period from January 1976 to December 1996. The analysis tests whether persistence is related to the fund characteristics size, goal, management fees, turnover, fund family membership, fund experience, and the exchange on which a fund is traded. The results vary across holding periods used to calculate persistence but are similar with respect to the NAV and market price returns. Funds with lower expense ratios and funds traded on the NYSE show more persistence of strong NAV and market price performance.     

Selecting Australian equity superannuation funds: A retail investor's perspective

In this performance persistence study, two questions are addressed. First, what is the relationship between past fund returns and future performance? Secondly, does a ’hot hand‘ fund selection system deliver economically significant returns to investors? Using a sample of Australian equity superannuation funds over the 1990s, the answers from this study are as follows: on a raw and risk-adjusted return basis the authors find evidence of mean reversion, with prior annual performance having little influence on future fund return. Selecting funds based on a persistence strategy resulted in underperformance of industry and passive returns for the retail superannuation investor over the sample period. The findings of the study have serious implications for financial planning advisers who market superannuation funds based on past performance. The results suggest that previous annual performance has little influence on future returns.     

Alpha and Persistence in Real Estate Fund Performance

This paper investigates whether fund managers investing in the direct real estate market can systematically and persistently deliver superior risk-adjusted returns. The research that has been published has typically focused on the performance of managers trading public real estate securities. Our study draws on a unique data set of commercial real estate funds collated by the Investment Property Databank (IPD) in the United Kingdom, covering up to 280 funds over the period 1981 to 2006. The widespread finding is that very few managers appear to be able to generate excess risk-adjusted returns. Furthermore, there is little evidence of performance persistence in either fund returns or risk-adjusted fund returns.     

Measuring performance of international closed-end funds

This paper provides an empirical analysis of the performance of 45 international closed-end funds and compares alternate measures of performance using the sample of funds and 35 national market indices. The empirical evidence indicates that the risk-adjusted performance of the shares or the net asset values of the funds match the performance of their respective local market indices, as well as the world market index and do not exhibit superior timing ability. These findings are robust to conditioning on information.     

Asset Pricing with Countercyclical Household Consumption Risk

We show that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and drive asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences. A single state variable drives the conditional cross‐sectional moments of household consumption growth. The estimated model fits well the unconditional cross‐sectional moments of household consumption growth and the moments of the risk‐free rate, equity premium, price‐dividend ratio, and aggregate dividend and consumption growth. The model‐implied risk‐free rate and price‐dividend ratio are procyclical, while the market return has countercyclical mean and variance. Finally, household consumption risk explains the cross section of excess returns.     

Diversification benefits and persistence of US-based global bond funds

This paper examines diversification benefits and performance persistence of 188 US-based global bond funds that survived and were defunct during the period of 1993–2004. Consistent with managed fund literature, global funds underperform broad-based benchmark indexes; however, the underperformance is less than the funds’ expense ratio. The results using both simple and time-varying frameworks suggest that global funds provide higher total return and comparable risk-adjusted return to domestic bond funds. For US investors specializing in domestic bond funds, global funds can enhance return by 0.5–1% per year without increasing risk. Global funds also provide incremental diversification benefits to equity fund investors. The funds exhibit short-run performance persistence, but this is difficult for investors to exploit, especially in long-run. Global funds show no return seasonality during the sample period. On a risk-adjusted basis, larger and newer funds and funds with long maturity and low expense ratio perform well.     

EX‐DIVIDEND DAY PRICE BEHAVIOR OF EXCHANGE‐TRADED FUNDS

We document that for exchange‐traded funds (ETFs), the price falls on average by the dividend amounts on the ex‐dividend day, and there are significantly positive abnormal volumes. This is because trading in ETFs entails lower transaction costs and lower risk than trading in equity closed‐end funds (CEFs) and individual stocks. Similar results are also found for equity CEFs. However, regression analyses indicate that transaction costs and risk are indeed negligible for ETFs but not for equity CEFs and that risk remains important for a sample of stocks matched based on transaction costs. Overall, the results support the short‐term traders hypothesis.     

从2000年基金年报信息追溯基金研究中心的三个问题

本文从三个方面对2000年基金年报信息进行了剖析。第一，从多角度对33只证券投资基金进行分类的结果表明，最能体现基金业绩与投资风格差异度的分类方法不是基金的投资目标而是基金管理公司。基金管理公司内部的资源共享是造成这一现象的原因。第二，指数型基金在2000年的表现尚不尽人意，投资理念亦不清晰。第三，保险公司选择基金的标准相当理性，注重基金的分红市价比、夏普指数、资产净值收益率几项指标，其选择的正确性亦得到2000年基金业绩的证实。     

Mutual Fund Performance: Evidence from the UK

This paper uses a large sample containing the complete return histories of 2300 UK open-ended mutual funds over a 23-year period to measure fund performance. We find some evidence of underperformance on a risk-adjusted basis by the average fund manager, persistence of performance and the existence of a substantial survivor bias. Similar findings have been reported for US equity mutual funds. New findings not previously documented for other markets include evidence that mutual fund performance varies substantially across different asset categories, especially foreign asset categories. We also identify some new patterns in performance related to the funds' distance from their inception and termination dates: underperformance intensifies as the fund termination date approaches, while, in contrast, there is some evidence that funds (weakly) outperform during their first year of existence.     

Stock Returns, Dividend Yields, and Taxes

Using an improved measure of a common stock's annualized dividend yield, we document that risk-adjusted NYSE stock returns increase in dividend yield during the period from 1963 to 1994. This relation between return and yield is robust to various specifications of multifactor asset pricing models that incorporate the Fama–French factors. The magnitude of the yield effect is too large to be explained by a "tax penalty" on dividend income and is not explained by previously documented anomalies. Interestingly, the effect is primarily driven by smaller market capitalization stocks and zero-yield stocks.     

On the efficacy of stop-loss rules in the presence of overnight gaps

A stop-loss rule is a risk management tool whereby the investor predefines some condition that, upon being triggered by market dynamics, implies the liquidation of her outstanding position. Such a tool is widely used by practitioners in financial markets with the hope of improving their investment performance by cutting losses and consolidating gains. We analyze in this work the performance of four popular implementations of stop-loss rules applied to asset prices whose returns are modeled with consideration of overnight gaps, that is, jumps from the closing price of one day to the opening price of the next trading day. In addition, our models include acute momentary price drops (flash crashes), which are often believed to erode the performance gains that might be derived from stop-loss rules. For this analysis we consider different models of asset returns: random walk, autoregressive and regime-switching models. In addition, we test the performance of the considered stop-loss rules in a non-parametric, data-driven framework based on the stationary bootstrap. As a general conclusion we find that, even when including overnight gaps and flash crashes in our price models, in rising markets stop-loss rules improve the expected risk-adjusted return according to most metrics, while improving absolute expected return in falling markets. Furthermore, we find that in general the simple fixed percentage stop-loss rule may be, in risk-adjusted terms, the most powerful among the popular rules that this work considers.     

Portfolio concentration and fund manager performance

This research examines the relationships among portfolio concentration, fund manager skills, and fund performance in Taiwan's equity mutual fund industry, yielding several empirical findings as follows. First, after controlling for other factors, concentrated equity funds tend to have smaller net asset values, larger fund flows, higher turnover rates, and a younger age and prevail in smaller fund families. Second, concentrated fund managers buy and sell stocks more smartly based on economic trends or market factors than do diversified fund managers, i.e., they have better market‐timing abilities. Third, only partial evidence supports the premise that concentrated equity funds have better next‐quarter risk‐adjusted performances than do diversified ones, as these fund managers' skills positively correlate to risk‐adjusted fund performance. Fourth, fund managers who have better stock‐picking abilities and intensively invest in certain industries generally exhibit better Carhart's alpha in the next quarter than do other fund managers. Fifth, fund managers' stock‐picking abilities more closely relate to long‐term performance than do their market‐timing abilities. Lastly, positive performance persistence is much stronger than negative performance persistence, but concentrated funds do not have stronger performance persistence than do diversified funds.     

MARKET VOLATILITY AND PERVERSE TIMING PERFORMANCE OF MUTUAL FUND MANAGERS

Prompted by the recent volatility in equity markets, I investigate performance evaluation methods and the mutual fund managers' ability to select undervalued investments and time major market movements during the high-market-volatility period of the 1980s. Specifically, I examine mutual fund managers' stock-selection and market-timing abilities by employing a five-factor risk-adjusted model based on Carhart's four-factor loading model and Bhattacharya and Pfleiderer's quadratic timing model adjusted for perverse timing behavior. Individually, some managers persistently affect fund performance through the selection of undervalued investments, however, at the expense of timing performance. In addition, funds that demonstrate an ability to time major market movements showed persistence in timing performance before and after the October market crash of 1987.     

The information content of portfolio performance history and persistence in fund performance: An examination of rollover funds

This paper examines the relation between past and future performance and explores the optimal past performance information set for a subset of Australian investment funds, namely, rollover funds. Four categories of funds are examined: fixed interest; multi-sector yield; multi-sector balanced; and multi-sector growth. This study extends the performance persistence literature through the use of three methodologies (1) regression analysis;(2) non-parametric contingency tables; and (3) top (and bottom) quartile rankings to explore the information content of fund performance history for groups of funds differentiated by investment objective. The results of the regression analysis suggest that there is evidence in support of persistence in performance for the fixed interest funds (particularly when performance is measured in terms of Jensen Alpha) but much more ambiguous evidence in relation to the multi-sector funds. Contingency table analysis of fund performance histories of varying lengths reveals quite different results depending upon whether raw or risk-adjusted returns are used. Use of raw returns creates an overall impression of performance reversals, whereas use of risk-adjusted returns suggests the existence of performance persistence. Finally, the use of prior period top-quartile and bottom-quartile ranking are found to show strong evidence of persistence in respect to the risk-adjusted performance of fixed-interest funds.     

Emerging Market Bond Funds: A Comprehensive Analysis

We analyze U.S.‐based emerging market bond funds over a ten‐year (1996–2005) complete cycle of ups and downs in the dominant emerging bond markets. Emerging market bond funds outperform comparable domestic and global bond funds. The results are robust across both conditional and unconditional models. The funds also provide international diversification benefits to U.S. and international bond and equity portfolios. The funds exhibit persistence in performance and seasonality. Active funds, large funds and funds with high minimum purchases perform better on a total return basis but not on a risk‐adjusted basis.     

The performance of US bond mutual funds

We evaluate the performance of the US bond mutual fund industry using a comprehensive sample of bond funds over a long time period from January 1998 to February 2017. In this one study, we examine bond fund selectivity, market timing and performance persistence. We evaluate bond funds relative to their self-declared benchmarks and in terms of both gross-of-fee returns and net-of-fee returns. We document considerable abnormal performance among funds both to the fund (gross returns) and to the investor (net returns). Bond fund performance is found to be superior in the post financial crisis period. However, past strong performance cannot be relied upon to predict future performance. Finally, while some funds exhibit market timing ability; we find a predominance of negative market timing among US bond mutual funds.     

Feedback trading and intermittent market turbulence

This paper studies the potential for complex asset return dynamics in a high-frequency, non-fundamental feedback trading model. Price adjustment is driven by the time-varying price impact of net orderflow. In tranquil times feedback trading has no impact on the price level. Given feedback trading intensities, as asset liquidity declines the market progressively becomes stressed and turbulent. Returns and absolute returns persistence are found to display power-law features, and episodes of turbulence are intermittent.     

“Hot Hands” in bond funds

We investigate persistence in the relative performance of 3549 bond mutual funds from 1990 to 2003. We show that bond funds that display strong (weak) performance over a past period continue to do so in future periods. The out-of-sample difference in risk-adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3.5 percent per year. We demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return, suggesting that bond fund investors can exploit the observed persistence. Our results are robust to a wide range of model specifications and bootstrapped test statistics.