The ABCs of mutual funds: On the introduction of multiple share classes

We study a significant innovation with widespread consequences for the mutual fund industry: the introduction of multiple-class funds that give investors a choice among alternative load and fee structures. The transition to a multiple-class structure represents an important step in the evolution of the mutual fund industry. It also provides a well-controlled setting for research on the structure of funds, on investor clienteles and their impact on fund performance and, more generally, about the manner in which financial innovations tend to be adopted. We develop a simple model of a fund's decision on whether and when to introduce new classes and empirically investigate the model's predictions that: (a) Funds with more skilled management, less sensitivity of flows to performance, smaller size, higher existing loads and membership in larger families are better positioned to benefit and, therefore, more likely to switch to a multiple-class structure earlier; (b) The new classes increase the level and volatility of fund inflow by attracting investors with short and uncertain investment horizons – which, in turn, can negatively impact fund performance. Our empirical results are generally supportive of the model's predictions.     

An analysis of commodity markets: What gain for investors?

In this paper we study whether the commodity futures market predicts the commodity spot market. Using historical daily data on four commodities—oil, gold, platinum, and silver—we find that they do. We then show how investors can use this information on the futures market to devise trading strategies and make profits. In particular, dynamic trading strategies based on a mean–variance investor framework produce somewhat different results compared with those based on technical trading rules. Dynamic trading strategies suggest that all commodities are profitable and profits are dependent on structural breaks. The most recent global financial crisis marked a period in which commodity profits were the weakest.     

Is devaluation expansionary or contractionary? Empirical evidence from Fiji

Devaluation has been traditionally promoted as an effective tool for increasing exports and improving the external position of the devaluing country if a nominal devaluation results in expenditure switching. In this article, our aim is to model the relationship between currency devaluations and output for Fiji. Following the approach in Bahmani et al. (2002 Bahmani-Oskooee, M, Chomsisengphet, S and Kandil, M. 2002. Are devaluations contractionary in Asia?. Journal of Post Keynesian Economics, 25: 69–81. [Taylor &; Francis Online] , [Google Scholar]), we extend the traditional model by incorporating other monetary and fiscal policy variables. We achieve our goal by using the recently developed bounds testing approach to cointegration and the autoregressive distributed lag model and find that devaluation is expansionary in the case of Fiji.     

Is health care really a luxury in OECD countries? Evidence from alternative price deflators

This article examines whether real Health-care Expenditure (HE) is a luxury or necessity for Organization for Economic Co-operation and Development (OECD) countries over the period 1972 to 2004 within a panel unit root and panel cointegration framework. To realize this objective, we regress HE on real Gross Domestic Product (GDP), the proportion of the population aged over 65 (P65) and a time trend (T). We first present results for 18 countries where real HE per capita is obtained using a general GDP deflator. For these countries, we find that health care is a luxury for just one country. Next, we present results for eight countries where real HE is obtained using a specific health-care price index. When the general GDP deflator is replaced with a specific health-care price index, at least one of the GDP, P65 or T coefficients for the eight countries changes in a reasonably dramatic fashion, suggesting that the use of the GDP deflator introduces bias into the regression. We find that HE is a necessity in all eight countries. Given that the reliability of the GDP deflator results is questionable, on the basis of the results for the eight countries, we conclude that HE is a necessity.     

From the ‘Hindu rate of growth’ to ‘unstoppable India’: has the services sector played a role?

India shifted from an import substitution growth strategy (ISS) to an export-led-growth strategy (ELGS) in July 1991. Consequently, liberalisation was promulgated not only in the industrial sector but in the services sector too in the post-1991 period. ‘services-led-growth strategy’ – a concomitant of ELGS – has led to an improvement in the revealed comparative advantage in the export of commercial services during the period 1990–2005. Furthermore, the openness of services and foreign direct investment in services have emerged as important determinants of gross domestic product growth during the period 1995–2005. The author therefore argues that if ISS led to the ‘Hindu rate of growth’ in the first three decades of planning, it is the services-led growth which has made ‘India unstoppable’ on the economic front.     

Economic evaluation among Chinese patients with nosocomial pneumonia caused by methicillin-resistant staphylococcus aureus and treated with linezolid or vancomycin: a secondary,post-hoc analysis based on a Phase 4 clinical trial study

Objective:

To assess cost-effectiveness of linezolid vs vancomycin in treating nosocomial pneumonia caused by methicillin-resistant Staphylococcus aureus (MRSA-NP) in China and the impact of renal failure on healthcare resource utilization (HCRU) and costs.

Methods:

Cost-effectiveness analysis was conducted based on data from the ZEPHyR trial, with efficacy measured by treatment success and costs calculated from HCRU. Confidence intervals (CI) for cost, efficacy and incremental cost-effectiveness ratios (ICER) were calculated by non-parametric bootstrap. Chi-square test was used for renal failure rate and t-test for HCRU/cost comparisons. Impact of renal failure was assessed using regression model.

Results:

Data from 448 patients (1:1 linezolid:vancomycin) were analyzed. More patients treated with linezolid achieved success (55% [95% CI?=?48–62%]) than with vancomycin (45% [38–52%]). Treatment cost were ¥79,551 (95% CI?=?¥72,421–¥86,680) for linezolid vs ¥77,587 (¥70,656–¥84,519) for vancomycin in Beijing, ¥90,995 (¥82,598–¥99,393) vs ¥89,448 (¥81,295–¥97,601) in Guangzhou, ¥82,383 (¥74,956–¥89,810) vs ¥80,799 (¥73,545–¥88,054) in Nanjing and ¥59,413 (¥54,366–¥64,460) vs ¥57,804 (¥52,613–¥62,996) in Xi’an. Per successful treatment, the ICER of linezolid over vancomycin were ¥19,719

(?¥143,553 to ¥320,980) (Beijing), ¥15,532 (?¥185,411 to ¥349,693) (Guangzhou), ¥15,904 (?¥161,935 to ¥314,987) (Nanjing) and ¥16,145 (?¥100,738 to ¥234,412) (Xi’an). From simulations, the majority of linezolid cases had greater efficacy and higher costs and more than one third had greater efficacy and lower costs. More vancomycin patients developed renal failure (15% vs 4%, p?<?0.001). Patients with renal failure had higher cost (Nanjng: ¥100,449 (SD?=?¥65,080) vs ¥74,944 (SD?=?¥49,632), p?=?0.002).

Conclusion:

Linezolid was more cost-effective than vancomycin in treating MRSA-NP from a Chinese payer’s perspective, and associated with less renal failure, HCRU and cost.     

Price competition with repeat, loyal buyers

Extant theoretical models suggest that greater consumer loyalty increases a firm’s market power and leads to higher prices and fewer price promotions (Klemperer, Quarterly Journal of Economics 102(2):375–394, 1987a, Economic Journal 97(0):99–177, 1987b, Review of Economic Studies 62(4):515–539, 1995; Padilla, Journal of Economic Theory 67(2):520–530, 1995). However, in some markets large, national brands that are able to generate more consumer loyalty than their rivals offer lower prices and promote more frequently. In this paper, we develop a two-period game-theoretic, asymmetric duopoly model in which firms differ in their ability to retain repeat, loyal buyers. In this market, we demonstrate that it is optimal for a firm that generates more loyalty to offer a lower average price and promote more frequently than a weaker competitor. Numerical analysis of a more general infinite period version of this asymmetric model leads to three additional results. First, we show that there is an inverted-U relationship between a weak firm’s ability to attract repeat, loyal consumers and strong firm profits. Second, we show that the relative ability of firms to attract repeat buyers affects whether serial and contemporaneous price correlations are positive or negative. Finally, we highlight the effect of dynamics on firms’ expected prices and profits.

Performance of Enhanced Index and Quantitative Equity Funds

We examine the performance of enhanced index and quantitative equity funds. Both types of funds use quantitative models in investment selection. Enhanced index funds set an explicit objective to outperform a benchmark index. Proponents of quantitative funds argue that their management style takes human emotions out of the investment decision‐making process and leads to more objective stock selection. We find evidence of outperformance by quantitatively managed growth funds, especially those investing in small cap stocks.     

EXAMINING THE ASYMMETRIC BEHAVIOUR OF MACROECONOMIC AGGREGATES IN ASIAN ECONOMIES

Abstract. The goal of this paper is to test for asymmetric behaviour of macroeconomic aggregates for three Asian economies; namely, Malaysia, Hong Kong and Korea. Whether macroeconomic aggregates can be characterised as asymmetric has important implications for policy‐making and econometric modelling including forecasting. We examine two forms of asymmetries; specifically deepness, which arises when a detrended time series contains an asymmetric distribution, and steepness, which arises when the first difference of a series contains an asymmetric distribution. Overall, our findings suggest that for all three countries, the bulk of the series display asymmetry behaviour.