Is Money Smart? A Study of Mutual Fund Investors' Fund Selection Ability

A previous study finds evidence to support selection ability among active fund investors for equity funds listed in 1982. Using a large sample of equity funds, I find evidence that funds that receive more money subsequently perform significantly better than those that lose money. This effect is short-lived and is largely but not completely explained by a strategy of betting on winners. In the aggregate, there is no significant evidence that funds that receive more money subsequently beat the market. However, it is possible to earn positive abnormal returns by using the cash flow information for small funds.     

What Is Systemic Risk?

The traditional view of risk in a financial system is that it is the summation of individual risks within the system. However, the financial crisis that started in 2007 has driven home that this view of risk is inadequate. It is the interactions of financial institutions and markets that determine the systemic risks that drive financial crises. We identify four types of systemic risk. These are (i) panics—banking crises due to multiple equilibria; (ii) banking crises due to asset price falls; (iii) contagion; and (iv) foreign exchange mismatches in the banking system.     

What if Variable Annuity Policyholders With Guaranteed Lifelong Withdrawal Benefit Were Rational?

This article examines the lapse risk inherent to the guaranteed lifelong withdrawal benefit option embedded in a variable annuity product valuated from a pure derivatives perspective, that is, as a Bermudian option given to the policyholder. We assume rational behavior and quantify the potential impact of the lapse risk, defined as the difference between no lapse and optimal lapsing. We develop a sensitivity analysis that shows how the value of the product varies with the key parameters, and calculate the fair fee using Monte Carlo simulations. Empirical analyses are performed and numerical results are provided.     

What Do We Know About Market Discipline in Insurance?

The aim of this article is to summarize the knowledge on market discipline in insurance and other financial service sectors. Market discipline can be defined as the ability of customers, investors, intermediaries (agents, brokers), and evaluators (analysts, auditors, rating agencies) to monitor and influence a company's management. Looking at banking is especially interesting, since market discipline in this field has been studied extensively. Based on existing knowledge, we develop a framework for researching market discipline in insurance that includes its most important drivers and impediments. The results highlight a significant need for continuing research. The findings are of relevance not only for European insurers and regulators, but for institutions outside Europe.     

What Style Liquidity Timing Skills Do Mutual Fund Managers Possess?

Recent studies claim that mutual fund managers demonstrate strong MARKET liquidity timing skills. We extend their liquidity timing tests to the four‐factor case and investigate liquidity timing skills with respect to the MARKET, SIZE, VALUE and MOMENTUM factors. Contrary to these claims, we find no evidence that fund managers adjust market exposure in anticipation of market liquidity changes. We find rather strong evidence that fund managers successfully overweight small stocks as market liquidity increases. Our study also demonstrates that it is easy to misidentify SIZE liquidity timing as MARKET liquidity timing in models that focus only on MARKET liquidity timing.     

What Is Real Estate Finance?

The Journal of Real Estate Finance and Economics - How does real estate finance relate to the core of contemporary finance? What research in real estate might most interest financial economists?...     

Can an Unemployment Insurance System Generate Multiple Natural Rates?

This article studies some macroeconomic consequences of the financing of an unemployment insurance scheme. Under a balanced-budget rule, when both taxes and unemployment benefits are proportional to wages, the existence of multiple natural rates of unemployment is a generic property of the matching model. Government can lead the economy to a high equilibrium by fixing the rate of tax on wages and then setting the replacement ratio so that its expenditure matches its receipts.     

What becomes an icon most?

Some brands become icons. Think of Nike, Apple, Harley-Davidson: They're the brands every marketer regards with awe. But they are not built according to the principles of conventional marketing, says Harvard Business School marketing professor Douglas Holt. Iconic brands beat the competition not just by delivering innovative benefits, services, or technologies but by forging a deep connection with the culture. A brand becomes an icon when it offers a compelling myth, a story that can help people resolve tensions in their lives. The deepest source of tension in modern society is the disparity between national ideology and the average citizen's reality. When ideologies shift, myths become even more important, and in America, the most potent myths are depictions of rebels. Mountain Dew has long offered a rebel myth in ads showing exciting, vital men who are far from the ideological model of success. Loyal customers drink the beverage to consume the myth. But Mountain Dew's greatest achievement is that it has retained its iconic power by creating fresh rebel myths to suit the tensions of each era: first the hillbilly, who stood in stark contrast to the organization man of the 1950s and 1960s; then the redneck, who rebelled against the investment bankers and consultants of the 1970s and 1980s; and most recently the slacker, who rejects the values and behaviors that, for the past decade, have marked the successful executive. Holt says marketers can learn from Mountain Dew and other iconic brands if they are willing to move beyond conventional brand management and acquire knowledge and skills they may not have. They must learn to target national contradictions instead of just consumer segments, create myths that make sense of confusing societal changes, and speak with a rebel's voice.     

What is an InsurTech? A scientific approach for defining the term

The insurance sector has been transformed as a result of the impact of InsurTech. However, although InsurTech has become a highly relevant concept in recent years, there has yet to be an agreed-upon meaning of InsurTech. Therefore, it is necessary to establish a solid definition that provides a clear understanding of the term InsurTech. For this purpose, an essential study of the complete scientific production has been carried out through the results obtained for InsurTech in the most relevant databases up to December 31, 2021. This paper aims to define the term InsurTech considering all the contributions made by scholars in the existing academic literature. The research methodology has consisted of an extensive systematic literature review merged with a comprehensive analysis of the nature of the definitions of InsurTech through a three-stage procedure. A total of 111 academic articles referring to InsurTech have been found. Based on a rigorous analysis and building on the common elements of the 17 meanings provided by the academics, a definition of Insurtech from a scientific approach has been presented. Finally, the nuances of this definition for an Insurtech to be considered as such are discussed and explained.     

Is Timing Everything? The Value of Mutual Fund Manager Trades

I develop new measures of the value of active mutual fund management using portfolio holdings. These measures simultaneously test for trading and selection skill within stocks, industries, and characteristics. I demonstrate that most of the skill documented in prior studies comes from correctly trading stocks within industries, though funds also have some skill in timing industries. However, prior research focuses on the period 1980‐1994. I also test the hold out sample 1995‐2007. Contrary to prior results, the latter period (and the full sample) demonstrates that mutual funds generate no excess returns from any category of skill.     

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.     

Genetics and Insurance: What have we Learned So Far?

Genetics and insurance is an area unusually exposed to rapid scientific advance, close public and political scrutiny, and popular myth. It may be leading the way towards evidence-based underwriting. This survey paper describes some of the experience gained since actuarial involvement began in the mid-1990s, particularly the vital link with genetic epidemiology. We survey the relevant aims and outputs of genetic epidemiology, mainly relating to single-gene disorders, and the use of genetic epidemiology in actuarial models. The part that actuarial models might play in evidence-based approaches to underwriting and policy-making is discussed.     

Is There Market Discipline in the European Insurance Industry? An Analysis of the German Insurance Market

Economists often argue in favour of market discipline as a means to distribute resources effectively and efficiently. These same arguments likely influence decision-makers as they incorporate market discipline as the third pillar of Solvency II, the European insurance regulatory scheme currently being implemented. Success for Solvency II, then, is dependent in part on the strength of influence found in market discipline. Our research indicates that the German insurance market demonstrates the existence of such discipline, although the actual effect appears smaller than previously found in the U.S. insurance market. Solvency II, therefore, seems to be following an appropriate path, although further research is needed to evaluate whether or not enhancements to market discipline within the European market are warranted.     

The National Flood Insurance Program: Is It Financially Sound?

This article uses data provided by the Federal Emergency Management Agency, which implements the NFIP, to estimate the difference between annual premiums and expected costs associated for the program as a whole and for inland and coastal regions. In addition, we examine the role of discounts, cross‐subsidies, and FEMA's method of setting what it considers to be full‐risk rates in explaining the outcomes that we observe.     

Doha Merchandise Trade Reform: What Is at Stake for Developing Countries?

The LINKAGE model of the global economy and the latest GlobalTrade Analysis Project (GTAP) database (version 6.05) are usedto examine the impact of current merchandise trade barriersand agricultural subsidies and possible reform outcomes of theWorld Trade Organization’s (WTO’s) Doha DevelopmentAgenda. The results suggest that moving to free global merchandisetrade would boost real incomes in Sub-Saharan Africa proportionatelymore than in other developing countries or in high-income countries,despite the terms of trade loss in parts of that region. Particularattention is given to agriculture, as farmers constitute thepoorest households in developing countries but the most assistedin rich countries. Net farm incomes would rise substantiallyin Sub-Saharan Africa and other developing country regions,alleviating rural poverty. Partial liberalization could movethe world some way toward those desirable outcomes, the moreso the more developing countries themselves cut applied tariffs,particularly on agricultural imports.     

Feeling Is Believing? Evidence From Earthquake Shaking Experience and Insurance Demand

This article investigates how a particular type of personal experience—“no-loss” experience with minor earthquakes—affects financial decisions such as insurance purchases. We find a small temporary increase in insurance demand in areas that experience a shaking with moderate intensity, or multiple shakings with light intensity. An analysis of Google Trends data confirms an immediate increase in interest in insurance though not in seismic retrofit. These findings extend the applicability of the availability bias and hot-hand fallacy to a broader context: financial decisions may be motivated by not only loss experience, but also recent no-loss experience, as people may extrapolate their “feeling” to something worse. However, such experience does not motivate long-term behavioral change.