Coskewness timing ability in the mutual fund industry

The ability of mutual fund managers to time coskewness successfully can help them manage their portfolio’s exposure to potential losses and improve their fund’s performance. This study assesses whether mutual fund managers are able to manage the market exposure of their investment portfolios given a change in coskewness. We demonstrate that fund managers investing in Small Blend and Small Growth stocks possess the ability to time coskewness. On average, the fund managers of these two investment objectives increase the market exposures of their portfolios about 2.749 % and 1.340 %, respectively, based on their anticipations on future coskewness. Superiority is driven from the fact that the fund managers in small capitalization stocks are successfully able to manage the tail risk of their funds’ portfolios. The fund-by-fund results confirm that the number of individual funds succeeding in timing market skewness of the Small Blend and Small Growth investment objectives is larger than the remaining types. The main findings are robust when controlling for other types of timing ability, the periods of financial turbulence, and the construction of coskewness.     

Risk-taking and performance of government bond mutual funds

This paper investigates the risk exposures of government bond mutual funds and how risk-taking behavior affects fund performance. Government bond mutual funds often outperform their respective benchmark bond indexes before but not after adjusting for bond market risk factors. We show that the risk-taking behavior of fund managers helps to explain the different performances of government bond funds with and without controlling for the risk factors. Our results suggest that risk-taking leads to higher returns relative to benchmarks in normal risk periods but lower returns in high risk periods, suggesting that fund managers consistently take risky bets in fund management. We further show that the risk-taking of government bond funds is persistent and that investors typically have no ability to differentiate between the skill and risk components of fund performance. These findings suggest why fund managers have incentives to take consistently risky positions.     

On the concentration of mutual fund portfolio holdings: Evidence from Taiwan

This paper tests the alternative hypotheses of investment selection skills versus overconfidence of equity mutual funds managers in Taiwan. We find that fund holdings’ concentration levels are high and positively related to funds’ risk-adjusted returns in tranquil market periods; however, the concentration levels are low and more negatively related to risk-adjusted returns in turmoil market periods. The time varying concentration-performance relation is not driven by fund size. Our finding implies that fund managers have superior investment selection skills when the market is less volatile, but they exhibit overconfidence when the market is in turmoil, suggesting an investment strategy of shifting from concentrated funds to more broadly diversified funds when market condition becomes worse.     

基金业绩如何影响风格漂移和经理离职?——理论与经验分析

本文通过一个两期模型,刻画了基金业绩如何通过影响市场信念,进而影响基金风格漂移和基金公司的解雇行为。若上期基金业绩很好,基金经理就会在乐观的自我能力预期下,完全按照自己的判断选择基金投资风格;若上期业绩一般,基金经理会因为调整成本而不太愿意切换投资风格;而若上期业绩很差导致自我能力预期悲观,基金经理就宁愿模仿上期绩优基金的投资风格。综合起来,基金风格漂移将随上期基金业绩呈现出显著的U型关系。进一步,因为业绩很差的基金经理会采取模仿策略,因此在市场风格发生切换时更有可能发生基金经理解雇事件。此外,本文基于中国开放式基金的季度数据,检验了风格漂移与滞后一期基金业绩之间的关系,经验证据稳健地支持了理论分析的各种结论。     

Fund portfolio networks: A climate risk perspective

Within Europe, investment funds are more exposed to climate-sensitive economic sectors than banks, insurers, and pension funds. However, few climate-related financial risk assessments of the fund sector have been conducted. We use 8 trillion EUR of fund portfolio holdings to help fill this gap, using the network of portfolio overlaps. Funds with more polluting portfolios (brown funds) invest across more firms than funds with cleaner portfolios (green funds). This apparent diversification hides a concentration risk: brown funds are more closely connected with each other (have more similar portfolios) than green funds, which tend to herd less (have less similar portfolios with each other). This suggests that, in the event of a widespread climate-related financial shock, brown funds will face greater stress levels than green funds. A climate risk scenario exercise confirms this: among total system losses of 443 billion EUR, brown funds' losses are typically between two and three times higher than green funds' losses. Brown funds also have more systemic impact: because they play a more central role in the investment fund network, brown funds contribute twice as much towards system-wide losses as green funds. These findings suggest that, despite the growing attention paid to sustainable investing, systemic vulnerabilities remain and many funds' portfolio diversification approaches do not yet adequately incorporate climate risk.     

基金网络能够提高投资绩效吗？

基金网络在金融市场的信息流动中发挥着重要作用。本文利用基金共同持股关系构建了一个有效的基金网络数据集,以中国资本市场股票型基金2005-2018年季度数据为研究样本,考察基金网络是否以及如何影响投资绩效。结果表明,基金在基金网络中越处于网络中心地位,基金的投资绩效越高。使用基金家族网络作为工具变量缓解内生性偏误后,基金网络仍然对投资绩效具有显著的正向影响。进一步地,本文考察了基金网络影响投资绩效的渠道,结果表明,基金网络主要通过提高基金的选股技能、资产配置技能和管理技能影响投资绩效。最后,本文考察了基金网络对基金市场份额的影响,研究发现基金网络会显著提高基金的市场份额,对基金在市场上的占有率有积极的正向影响。     

Do Female Mutual Fund Managers Manage Differently?

We examine the performance and investment behavior of female fixed‐income mutual fund managers compared with male fixed‐income mutual fund managers. We find that male‐ and female‐managed funds do not differ significantly in terms of performance, risk, and other fund characteristics. Our results suggest that differences in investment behavior often attributed to gender may be related to investment knowledge and wealth constraints. Despite the similarities between male and female managers, we find evidence that gender influences the decision making of mutual fund investors. We find that the net asset flows into funds managed by females are lower than for males, especially for the manager's initial year managing the fund.     

The performance of female hedge fund managers

Using data for the period 1994–2013, we examine the return and risk-taking behavior of hedge funds having at least one female portfolio manager and funds that have all female portfolio managers. Funds with all female managers perform no differently than all male-managed funds and have similar risk profiles. For single-style funds, those with mixed teams of both genders underperform male-only funds on both a raw and risk-adjusted basis, although mixed funds incur less risk and their Sharpe ratios do not differ. For funds of funds, both all-female and mixed funds have similar performance to male-managed funds. We then consider the failure rate across all fund styles. Funds with at least one female manager fail at higher rates, driven by difficulty in raising capital—these funds are smaller and are less likely to be closed to new investment. Surviving funds with at least one female manager have better performance than male-managed surviving funds, consistent with the idea that female managers need to perform better for their funds to survive. Yet, female-managed surviving funds have fewer assets under management than surviving male-managed funds. Using media mentions as a proxy for investor interest, female-managed funds receive proportionately less attention. Our results suggest that there are no inherent differences in skill between female and male managers, but that only the best performing female managers manage to survive.     

基金业绩如何影响风格漂移和经理离职?——理论与经验分析

本文通过一个两期模型,刻画了基金业绩如何通过影响市场信念,进而影响基金风格漂移和基金公司的解雇行为。若上期基金业绩很好,基金经理就会在乐观的自我能力预期下,完全按照自己的判断选择基金投资风格;若上期业绩一般,基金经理会因为调整成本而不太愿意切换投资风格;而若上期业绩很差导致自我能力预期悲观,基金经理就宁愿模仿上期绩优基金的投资风格。综合起来,基金风格漂移将随上期基金业绩呈现出显著的U型关系。进一步,因为业绩很差的基金经理会采取模仿策略,因此在市场风格发生切换时更有可能发生基金经理解雇事件。此外,本文基于中国开放式基金的季度数据,检验了风格漂移与滞后一期基金业绩之间的关系,经验证据稳健地支持了理论分析的各种结论。     

Is Concentration a Good Idea? Evidence from Active Fund Management

In this paper, we examine whether mutual fund managers in Taiwan produce superior performance through concentrated investment strategy, and find that mutual funds with higher degree of concentration have higher investment performance and lower risk during the period 2001–2009. Moreover, when the degree of industry concentration of fund holdings is higher, there is less impact on stock market performance. However, the premium of the market portfolio has more impact on the performance of funds when there is lower degree of industry concentration. We also find that the stock-picking and market-timing abilities of mutual fund managers result in funds with high degree of industry concentration having more returns and lower risks than the funds with low degree of industry concentration.     

“和而不群”还是“卓尔不群”?——基于基金网络信息使用的视角

如何识别出优秀的基金管理者,理解其信息决策机制,对于优化资源配置、提升市场效率具有重要意义。本文探究了基金经理对自身所处基金网络中的共享信息的使用程度与其管理能力之间的关系。具体而言,本文通过基金的重仓持股构建了基金网络,采用基金自身交易与其所处网络中其他基金平均交易的偏离程度作为该基金对基金网络中信息使用的衡量。研究发现:(1)对基金网络中信息使用程度较低的基金的业绩要显著好于对基金网络中信息使用程度较高的基金。(2)更高的超额收益主要来源于基金经理优异的选股能力,虽由此承担了更多的异质性风险,却并未增大总体风险水平。(3)基金经理更换数据表明基金对网络内信息的使用程度更多地与基金经理特征相关而非与基金特征相关。(4)网络内信息使用程度直接反映了基金私有信息含量,因此更可能与基金经理能力相关。     

“和而不群”还是“卓尔不群”?——基于基金网络信息使用的视角

如何识别出优秀的基金管理者,理解其信息决策机制,对于优化资源配置、提升市场效率具有重要意义。本文探究了基金经理对自身所处基金网络中的共享信息的使用程度与其管理能力之间的关系。具体而言,本文通过基金的重仓持股构建了基金网络,采用基金自身交易与其所处网络中其他基金平均交易的偏离程度作为该基金对基金网络中信息使用的衡量。研究发现:(1)对基金网络中信息使用程度较低的基金的业绩要显著好于对基金网络中信息使用程度较高的基金。(2)更高的超额收益主要来源于基金经理优异的选股能力,虽由此承担了更多的异质性风险,却并未增大总体风险水平。(3)基金经理更换数据表明基金对网络内信息的使用程度更多地与基金经理特征相关而非与基金特征相关。(4)网络内信息使用程度直接反映了基金私有信息含量,因此更可能与基金经理能力相关。     

Rewarding risk-taking or skill? The case of private equity fund managers

We examine whether typical private equity fund compensation contracts reward excessive risk-taking rather than managerial skill. Our analysis is based on a novel model of investment value, cash flows, and fee dynamics of private equity funds. Given the embedded option-like fee components, our results demonstrate that fund managers indeed have an incentive for excessive risk-taking when only fee income from the current fund is considered. However, when managers also consider potential compensation from follow-on funds, their risk-taking incentives depend on their individual skill levels, and skilled managers will have an incentive to reduce fund risk. We also show that managers must generate substantial abnormal returns in order to compensate investors for the given fee components.     

Careers and Survival: Competition and Risk in the Hedge Fund and CTA Industry

Investors in hedge funds and commodity trading advisors (CTAs) are concerned with risk as well as return. We investigate the volatility of hedge funds and CTAs in light of managerial career concerns. We find an association between past performance and risk levels consistent with previous findings for mutual fund managers. Variance shifts depend upon relative rather than absolute fund performance. The importance of relative rankings points to the importance of reputation costs in the investment industry. Our analysis of factors contributing to fund disappearance shows that survival depends on absolute and relative performance, excess volatility, and on fund age.     

Fund Management and Systemic Risk – Lessons from the Global Financial Crisis

Fund managers play an important role in increasing efficiency and stability in financial markets. But research also indicates that fund management in certain circumstances may contribute to the buildup of systemic risk and severity of financial crises. The global financial crisis provided a number of new experiences on the contribution of fund managers to systemic risk. In this article, we focus on these lessons from the crisis. We distinguish between three sources of systemic risk in the financial system that may arise from fund management: insufficient credit risk transfer to fund managers; runs on funds that cause sudden reductions in funding to banks and other financial entities; and contagion through business ties between fund managers and their sponsors. Our discussion relates to the current intense debate on the role the so‐called shadow banking system played in the global financial crisis. Several regulatory initiatives have been launched or suggested to reduce the systemic risk arising from non‐bank financial entities, and we briefly discuss the likely impact of these on the sources of systemic risk outlined in the article.     

Alumni social networks and hedge fund performance: Evidence from China

Based on unique data of Chinese private hedge funds, we first construct the “strong alumni” (alumni of the same school and the same major) social networks of private hedge fund managers, and examine the impact of alumni social networks on the performance of hedge funds in China. We build a series of alumni networks using the educational background information of 4734 private hedge funds, and perform an empirical analysis on a sample of 1115 private hedge funds products from 2010 to 2019. Different from previous findings of mutual funds, we find that more central network positions of hedge fund managers are associated with better risk-adjusted fund performance. Hedge fund managers with more central positions conduct more active investment styles and receive lower fund flows.¹ The results supplement the evidence that information advantages brought by central position in social networks can influence managers' investment styles, thus improve hedge fund performance.     

How Are Derivatives Used? Evidence from the Mutual Fund Industry

We investigate investment managers' use of derivatives by comparing return distributions for equity mutual funds that use and do not use derivatives. In contrast to public perception, derivative users have risk exposure and return performance that are similar to nonusers. We also analyze changes in fund risk in response to prior fund performance. Changes in risk are substantially less severe for funds using derivatives, consistent with the explanation that managers use derivatives to reduce the impact of performance on risk. We provide new evidence regarding the implications of cash flows and managerial gaming for the relation between performance and risk.     

Liquidity shocks,size and the relative performance of hedge fund strategies

We examine whether the increase in the flow of capital to hedge funds over the period 1994–2005 had a negative impact on performance. More specifically, we study the relative performance of small versus large funds for each of the hedge fund strategies. Our results indicate that on an absolute return basis, small funds outperform large funds. On a risk-adjusted return basis, however, we find that large funds outperform small funds, and that large funds are also shown to hold less liquid assets and take on less systematic and idiosyncratic risk than small funds. Further, funds that experience positive liquidity shocks generally outperform those that experience negative liquidity shocks. We also find evidence that hedge fund managers that are aggressive in dealing with liquidity shocks perform better than hedge fund managers that are conservative in dealing with liquidity shocks.     

AGENCY CONFLICTS IN DELEGATED PORTFOLIO MANAGEMENT: EVIDENCE FROM NAMESAKE MUTUAL FUNDS

Namesake funds provide a unique sample for studying the two agency conflicts that exist within a mutual fund. The first is between the fund management company and fund shareholders, and the second is between the fund management company and the fund manager. A typical namesake fund manager sits on his or her fund's board, frequently as the chairman, is the majority owner of the fund management company, and has significant investments in the fund he or she manages. Our results indicate that namesake funds charge higher fees, suggesting that the boards of namesake funds are less effective. We find that namesake funds are more tax efficient, consistent with the idea that managerial ownership helps align the interests of managers with those of shareholders. Because of fewer career concerns, namesake fund managers herd less while assuming greater unsystematic risk. We find weak evidence that namesake fund managers outperform their benchmarks and peers. Finally, we observe that namesake funds attract higher levels of investor cash flow.     

Decomposing the persistence of international equity flows

The portfolio flows of institutional investors are widely known to be persistent. What is less well-known, however, is the source of this persistence. One possibility is the ‘informed trading hypothesis:’ that persistence arises from autocorrelated trades of individual investors who believe they have information about value and who face an imperfectly liquid market. Another possibility is that there are asynchroneities with respect to investment decisions across funds, across investments, or both. These asynchroneities could be due to wealth effects (across investments for a single fund), investor herding (across funds for a single investment), or generalized contagion (across funds and across investments). We use daily data on institutional flows into 21 developed countries by 471 funds to measure and decompose aggregate flow persistence. We find that the informed trading hypothesis explains about 75% of total persistence, and that the remaining amount is attributable entirely to cross-fund own-country persistence. While asynchroneities across funds investing in the same country are important, asynchroneities across countries, either within a given fund, or across funds, are not important. The cross-fund flow lags we identify might result from different fund investment processes, or from some funds mimicking others' decisions. We reject the hypothesis that wealth effects explain persistence.