Managing mutual funds or managing expense ratios? Evidence from the Greek fund industry

This study examines the expense ratio policy of Greek equity funds operating in a small emerging market with an oligopolistic, bank-dominated financial system. Constructing a unique dataset of non-publicly available expense ratios charged by these funds, we examine the impact these expenses have on funds’ performance and flows. The main conclusion is that funds’ performance is negatively related to their expenses, while investors’ flows are not directly affected by expenses. Furthermore, the funds affiliated with one of the three dominant domestic banking groups achieve higher performance and attract higher net flows in comparison to their competitors.     

Homemade international diversification under economic policy uncertainty

We examine how US mutual funds that invest domestically make portfolio adjustments by incorporating US-listed foreign stocks (cross-listed stocks) when faced with US market economic policy uncertainty. We document a positive association between US economic policy uncertainty and US mutual funds’ weight of cross-listed stocks, and find that the effect is concentrated in funds that mainly invest in the US domestic market. The findings are not sensitive to the instrumental variable approach, model specification, sampling, variable definition, and controlling for macro characteristics. Funds with higher weight of cross-listed foreign stocks when US economic policy uncertainty increases outperform other funds, indicating the rationality of such an investment strategy. A long-short portfolio generates 3.4% annualized abnormal return in the immediate following quarter. Our study shields light not only on the international diversification benefit of US-listed foreign stocks but also on the importance of capital market openness for domestic investors.     

Risk Transmission from Oil and Natural Gas Futures to Emerging Market Mutual Funds

This study evaluates the impacts of energy markets on emerging market mutual funds (EMMFs). In particular, we investigate the volatility transmission between these funds and the oil and natural gas prices. The findings suggest significant risk spillover from the energy markets to EMMFs. Furthermore, we find a large number of EMMFs’ risk transmitting to oil prices and almost all of the EMMFs’ risk transmitting to natural gas prices. By dividing the sample into two (before and after 2008), we find the EMMFs’ influence on the oil market decreasing after this turbulent period. Our results have important implications for mutual fund managers and investors.     

Taiwanese Mutual Fund Performance Under Different Central Bank of China Monetary Policy Environments

This study examines the performance of mutual funds under different Central Bank of China monetary policy environments in the emerging Taiwan market. To measure monetary policy changes effectively, we exploit changes in the discount rate and further categorize the monetary environment as either restrictive or expansive. We consider a restrictive monetary environment to be a period in which the discount rate rises, whereas an expansive monetary condition is a period in which the discount rate drops. It is found that all mutual funds, both domestic and international funds, exhibit a higher mean return, lower risk, and higher Sharpe and Treynor ratios under expansive monetary policy environments. Regression results show that domestic mutual fund returns are related significantly to local monetary policy. Furthermore, after controlling for the possible effect of macro factors on the association between the monetary policy dummy variable and mutual fund returns, the significant influence of monetary policy on domestic mutual fund returns remains robust. In contrast, changes in U.S. monetary policy stringency, in general, do not affect the performance of either domestic or international mutual funds in Taiwan.     

MARKET TIMING ABILITY OF POOLED SUPERANNUATION FUNDS JANUARY 1981 TO DECEMBER 1987

The performance of pooled superannuation funds is analysed within a framework that recognises that risk management or ‘market timing’ is an important aspect of the fund manager's decision-making. Two broad appraoches to the issue of ‘market timing’ are adopted: first, the performance evaluation model developed by Henriksson and Merton [1981] which allows for return differentials to arise from both security selection and market timing; and second, the recursive residuals methodology of Brown, Durbin and Evans [1975] which identifies points in chronological time when the risks of the funds underwent a change. The results indicate that only 5 out of 16 funds had significant shifts in their risk over the period of the study, all of which occurred in late 1986 to early 1987. It follows that the usual Jensen measure of performance is inappropriate for these funds since one component of their performance is due to market timing activities. The return performance of these market timing activities is significantly negative for 15 to 16 funds indicating that their timing ability is perverse. To some extent this is an artifact of the market crash of October 1987 and that all funds had a positive exposure to equities. However, due to their asset allocation policies all funds are assigned significantly positive security selection performance.     

New Zealand mutual funds: measuring performance and persistence in performance

The present study investigates the performance of New Zealand mutual funds using a survivorship‐bias controlled sample of 143 funds for the period of 1990–2003. Our overall results suggest that New Zealand mutual funds have not been able to provide out‐performance. Alphas for equity funds, both domestic and international, are insignificantly different from zero, whereas balanced funds underperform significantly. There is no evidence of timing abilities by the fund managers. In the short term, significant evidence of return persistence for all funds is observed. This persistence, however, is driven by ‘icy hands’ rather than ‘hot hands’. Finally, we find the risk‐adjusted performance for equity funds to be positively related to fund size and expense ratio and negatively related to load charges.     

Winners and losers: German equity mutual funds

We investigate the performance of winners and losers for German equity mutual funds (1990–2009), using empirical order statistics. When using gross returns and the Fama–French three-factor model, the number of statistically significant positive alpha funds is zero but increases markedly when market timing variables are added. However, when using a ‘total performance’ measure (which incorporates both alpha and the contribution of market timing), the number of statistically significant winner funds falls to zero. The latter is consistent with the bias in estimated alphas in the presence of market timing. We also find that many poorly performing funds are unskilled rather than unlucky.     

Financial market globalization,nonconvergence and credit cycles

This paper explores the dynamic consequences of variable investment-project size in a global economy consisting of many small open countries that are plagued with domestic credit market frictions. As is customary in the literature, borrowers provide some internal funds, but they also need external funds to implement their investment projects, which are subject to the costly-state-verification problem. Contrary to the literature, the investment-project size increases with the country’s own capital stock. We find that financial market globalization may lead to a process of oscillatory convergence, even in the absence of any exogenous shocks, if the investment-project size is very sensitive to the change in capital stock.     

Gender,style diversity,and their effect on fund performance

This paper examines the performance of 358 European diversified equity mutual funds controlling for gender diversity. Fund performance is evaluated against funds’ designated market indices and representative style portfolios. Consistently with previous studies, proper statistical tests point to the absence of significant differences in performance and risk between female and male managed funds. However, perverse market timing manifests itself mainly in female managed funds and in the left tail of the returns distribution. Interestingly, at fund level there is evidence of significant overperformance that survives even after accounting for funds’ exposure to known risk factors. Employing a quantile regression approach reveals that fund performance is highly dependent on the selection of the specific quantile of the returns distribution; also, style consistency for male and female managers manifests itself across different quantiles. These results have important implications for fund management companies and for retail investors’ asset allocation strategies.     

我国股市财富效应对居民消费影响的实证检验——基于生命周期—持久收入理论扩展模型的新视角

基于生命周期-持久收入(LC-PIH)理论,本文建立居民收入、消费支出、股市市值和购房支出几个变量之间的实证检验模型,以研究我国股市的财富效应。选取季度和月度频率数据,测算我国2003~2018年全口径居民消费和2013~2018年乘用车消费的股市财富效应,实证结果发现全口径居民消费主要受收入的影响,股市的财富效应不显著,检验结果符合持久收入说;乘用车消费除受收入的影响之外,股市的财富效应也显著。基于实证结果,并结合发达国家较为普遍存在的财富效应,提出三点建议:一是稳步提高居民可支配收入,是促进我国消费平稳增长、发挥消费拉动经济增长基础性作用的根本;二是要发挥出股市在消费中的财富效应,需改变我国股市长期存在的牛短熊长困境;三是应进一步提高我国居民通过养老金和企业年金等间接渠道参与股市的比重,使养老金、企业年金等长期资金与资本市场形成良性互动。     

Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic

Sustainable investing has gained significant momentum over the past few years. In this paper, we study the performance and flows of sustainable equity mutual funds in recent years through the COVID-19 pandemic. We find that the high-sustainable funds perform better than the low-sustainable ones by between 1.32% and 6.96% annually. This outperformance significantly increases during the COVID-19 pandemic-induced market crash and the post-crash pandemic. Similarly, we find that high-sustainable funds attract significantly more investments (or suffer less outflow) than the low-sustainable funds by between 5.28% and 5.76% per annum. These flow differences increase considerably during the market crash, consistent with the ‘flight-to-quality’ effect. We also find that the high-sustainable funds attract significantly more investment during the post-crash pandemic than before the crash. This suggests that investors consider sustainable investing a necessity (not a luxury good), and their taste/attitude towards sustainable investing has changed – now they prioritize ‘investing with a conscience.’     

What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide

We examine how mutual funds from 26 developed and developing countries allocate their investment between domestic and foreign equity markets and what factors determine their asset allocations worldwide. We find robust evidence that these funds, in aggregate, allocate a disproportionately larger fraction of investment to domestic stocks. Results indicate that the stock market development and familiarity variables have significant, but asymmetric, effects on the domestic bias (domestic investors overweighting the local markets) and foreign bias (foreign investors under or overweighting the overseas markets), and that economic development, capital controls, and withholding tax variables have significant effects only on the foreign bias.     

Emerging Market Exposures and the Predictability of Hedge Fund Returns

We examine emerging market and global macro hedge funds and find a significant positive relation between hedge funds’ future returns and their exposure to both emerging market equities and emerging market currencies. We present evidence that the strong predictive power of emerging market betas is related to the superior market‐timing ability of these fund managers. Results are robust after controlling for commonly used hedge fund factors, the emerging market equity index, lagged fund returns, liquidity risk, and fund characteristics. Our results suggest that hedge funds can earn positive excess returns by timing their exposure to emerging market securities.     

Can SRI funds better resist global financial crisis? Evidence from Japan

This paper compared Socially Responsible Investment (SRI) funds and conventional funds in the Japanese market with respect to the impact of the global financial crisis in 2008. Taking the bankruptcy of Lehman Brothers as a particular event, we estimated the average cumulative abnormal returns of both funds by event study methodology using a Fama–French three-factor model and EGARCH model. Our results suggest that SRI funds better resisted the bankruptcy of the Lehman Brothers than conventional funds. We also found that this result can be attributed to the existence of international funds, possibly because investors might evaluate the CSR activities of international firms more than those of domestic firms. Alternatively, it can be interpreted that the universe of domestic SRI funds is too limited to enjoy risk diversification.     

The investment behavior of buyout funds: Theory and evidence

We analyze the determinants of buyout funds’ investment decisions. We argue that when there is imperfect competition for private equity funds, the timing of funds’ investment decisions, their risk-taking behavior, and their subsequent returns depend on changes in the demand for private equity, conditions in the credit market, and fund managers’ ability to influence perceptions of their talent. We investigate these hypotheses using a proprietary dataset of 207 U.S. buyout funds that invested in 1,957 buyout targets over a 30-year period. Our dataset contains precisely dated cash inflows and outflows in every portfolio company, links every buyout target to an identifiable buyout fund, and is free from reporting and survivor biases. Thus, we are able to characterize every buyout fund's precise investment choices. Our findings are as follows. First, established funds accelerate their investment flows and earn higher returns when investment opportunities improve, competition for deal flow eases, and credit market conditions loosen. Second, the investment behavior of first-time funds is less sensitive to market conditions. Third, younger funds invest in riskier buyouts, in an effort to establish a track record. Finally, following periods of good performance, funds become more conservative, and this effect is stronger for first-time funds.     

Commonality in hedge fund returns: Driving factors and implications

We measure the commonality in hedge fund returns, identify its main driving factor and analyze its implications for financial stability. We find that hedge funds’ commonality increased significantly from 2003 until 2006. We attribute this rise mainly to the increase in hedge funds’ exposure to emerging market equities, which we identify as a common factor in hedge fund returns over this period. Our results show that funds with a high commonality were affected disproportionately by illiquidity and exhibited negative returns during the subsequent financial crisis, thereby providing little diversification benefits to the financial system and to investors.     

International Real Estate Mutual Fund Performance: Diversification or Costly Information?

We investigate the net effect between diversification benefit and information cost of international real estate mutual funds from three dimensions: whether investors can benefit from investing in international real estate mutual funds, whether managers of international real estate mutual funds possess superior market knowledge and timing abilities, and whether investors are motivated by returns or diversification. Our findings are threefold. First, the results show that international real estate mutual funds perform better and are less risky than domestic real estate mutual funds before Jun 2007. That is, diversification benefits outweigh the information costs, and investors therefore gain from investing in international real estate mutual funds. However, the benefit is reduced because of the economic shock of sub-prime financial crisis. Second, on average, neither international mutual fund managers nor domestic mutual fund managers possess market timing abilities. Finally, we find that fund flows are driven by investors’ return-chasing behaviors and fund size, but not by diversification purpose.     

Stock market liberalization and innovation

We investigate the effect of stock market liberalization on technological innovation. Using a sample of 20 economies that experience stock market liberalization, we find that these economies exhibit a higher level of innovation output after liberalization and that this effect is disproportionately stronger in more innovative industries. The relaxation of financial constraints, enhanced risk sharing between domestic and foreign investors, and improved corporate governance are three plausible channels that allow stock market liberalization to promote innovation. Finally, we show that technological innovation is a mechanism through which stock market liberalization affects productivity growth and therefore economic growth. Our paper provides new insights into the real effects of stock market liberalization on productivity growth and the economy.     

信息互动、投资决策与股票价格——基于机构投资者信息网络的分析

机构投资者之间存在着广泛的信息互动,其中包括信息共享与社会学习。本文基于2005-2018年我国A股市场与公募证券投资基金市场数据,应用社会关系网络理论实证分析了信息互动对于基金持仓决策以及股票市场价格的影响。结果表明:(1)信息互动对于基金持仓决策具有显著影响,且在不同决策情景与市场行情下其影响具有差异;(2)基金信息互动的影响可以分为“同城效应”和“异地效应”,不同城市的两种效应存在显著差异,并且不同城市基金的市场影响力也有所不同;(3)基金信息互动通过提高市场定价效率对于股价长期特质波动具有降低作用。本文基于社会关系网络理论分析了私有信息在机构投资者之间传播产生的影响,为认识机构投资者决策行为与股票市场价格异象提供了新的维度。     

Sovereign credit ratings and bank funding cost: Evidence from Africa

This paper aims to examine the relationship between sovereign credit ratings and funding costs of banks and also the relationship between sovereign credit ratings. Using over 300 banks operating in Africa from 2006 to 2012, the study investigates sovereign ratings’ impact on funding cost. The long term domestic sovereign ratings announced by Fitch and Standard & Poor’s during the period under study were used. The panel made use of Generalized Method of Moments estimation strategy for funding cost. The findings of the study indicate that sovereign ratings upgrades have an inverse and statistically significant relationship with funding costs. The findings suggest that sovereign rating upgrades makes it easier for banks to access funds from the capital and global market at a cheaper cost compared to rating downgrades. The study recommends and encourages emerging economies to use the services provided by credit rating agencies since these agencies may help improve accessibility of funds in the international markets by banks. It is recommended that sovereign rating should be considered as a supplement and not a substitute to our own perceived judgement and research.