Download or read book A Mispricing Based Explanation of How Flow Affects Mutual Fund Performance written by André de Souza and published by . This book was released on 2013 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using fund raw return as a proxy for unsophisticated flows, I find that future fund performance increases in alpha and decreases in flow. I show that funds holding stocks which, in aggregate, have been sold by funds with low flows do better in the future. Such stocks have had their prices pushed down, and therefore outperform. A measure of these “aggregate flow-induced sales” of a fund's portfolio largely subsumes raw return in predicting future fund performance. These results have implications for the debate on whether flows are responsible for the lack of mutual fund performance persistence.

Download or read book Two Essays on Asset Pricing Anomalies written by Che Kuan Chen and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the impact of mutual funds in the cross-sectional stock returns and examines a conflict in the existing literature that characterizes momentum. In the first essay, I examine the explanatory power of aggregate mutual fund flows for the profitability of price-based (i.e., momentum and 52-week high) and non-price-based (i.e., earnings surprises, profitability, share issuance, accrual and asset growth) anomalies in the cross-section of returns. I find that the flow-based trading of mutual funds contributes to mispricing as measured by the profits to price-based anomalies, especially at times when market-wide funding costs are high. The effect also exists for non-price-based anomalies, but only through the dependence of their profits on momentum. My findings support the view of Lou (2012) and Vayanos and Woolley (2013) that mutual funds’ trading on flows creates feedback that strengthens price-based anomalies, as high-performing funds buy additional shares of high-performing stocks and poorly performing funds sell shares of poorly performing stocks. However, the explanatory power of aggregate mutual fund flows for price-based anomaly returns is only partly attenuated by fund-level variables designed to capture the feedback effect. The flow-induced trading by mutual funds appears to contribute to mispricing for reasons beyond the feedback effect. The second essay examines the extent to which momentum profits depend on the state of credit markets. The state of credit markets does affect momentum, but the results are not consistent with a credit channel effect on momentum. For non-financial firms, the momentum profits are stronger among portfolios formed under favorable credit conditions. For financial firms, credit conditions do not matter to the momentum profits. Price continuations in financial firms are related to whether the firms are performing poorly, but not whether that performance is attributable to credit conditions that are favorable or poor.

Download or read book Swing Pricing and Fragility in Open end Mutual Funds written by Dunhong Jin and published by International Monetary Fund. This book was released on 2019-11-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.

Download or read book Investors Reactions to Manipulation of Performance Measures written by Bin Yu and published by . This book was released on 2011 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates how manipulation of fund performances affects fund flow in the US open-ended mutual fund industry. The flaws of conventional performance measures (CPMs) enable fund managers to artificially augment fund performance so as to attract more money. By comparing CPMs with manipulation proof performance measures (MPPM) introduced by Goezmann, Ingersoll, Spiegel, and Welch (2007), we verify that manipulation exists in the mutual fund industry. Using U.S. open-ended mutual fund data from 1991 to 2007, we classify the sample into manipulated and un-manipulated funds, and further demonstrate that individual investors, rather than institutional investors, are more prone to being deceived by manipulation behaviors and thus provide more money to manipulated funds. We start in Chapter 2 with the question of the best model for predicting fund flow. Using a US mutual fund sample as empirical evidence, we compare multiple models of predicting expected flow, and find that models considering a variety of regressors (e.g. past performance, fund size, age) outperform the models that only include lagged flow as the explanatory variable. We then generate the expected flow from the best predicting model, which together with total flow would be used when assessing the investors' reactions to manipulation. Chapter 3 examines whether fund performance measures are manipulated. We show that MPPM can help avoid manipulation, and there is a significant performance discrepancy between MPPM and CPMs when compared to the market. Hence we verify that there are performance manipulations in the mutual fund industry. In addition, we find that the manipulated funds are mainly funds with excess returns below the mean, and the manipulation on retail funds and new funds are more significant. Moreover, we find that after the new Morning Star Rating, which applies a similar intuition as MPPM, was popularized in 2002, the manipulations of performance significantly decreased. Given that CPMs can be manipulated, Chapter 4 investigates whether investors are deceived and provide more money to these funds. After controlling for endogeneity between fund flow and performance, we find that the manipulated funds attract significantly more money in comparison with a group of un-manipulated funds. Specifically, we show that in the retail sample, manipulations have a significantly positive effect on flows, whereas the effect is insignificant in the wholesale subsample. -- provided by Candidate.

Download or read book Essays on Mutual Fund Activeness and Sustainability as a Flow Determinant written by Sebastian Fischer and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contributes to two recent debates in the mutual fund literature: The impact of sustainability on mutual fund flows and the connection between fund activeness and mutual fund performance. In March 2016, Morningstar, one of the leading information providers in the mutual fund industry, introduced its mutual fund Sustainability Rating. The Rating provides investors with an easy-to-understand measure to identify funds that invest in accordance with high environmental, social, and governance standards. Chapter 1 investigates the effect of this Rating on mutual fund flows. An average high-rated retail fund receives up to USD 10.1 million higher net flows and an average low-rated retail fund suffers from up to USD 3.5 million lower net flows than an average-rated fund during the first year after the publication of the Rating. This result stresses the importance of sustainability as an investment criterion and the impact of the Sustainability Rating as a source of information to private investors. Chapters 2 through 4 examine whether the trading activity of a fund manager or fund activeness, that is the deviation of a fund portfolio from its benchmark, is linked to future performance. The fund literature has identified various activity measures that can predict fund returns. Chapter 2 shows that two of the most important measures, Active Share and the R2 selectivity measure, have not been good predictors after 2003 when controlling for different benchmark indices and alternative risk factors. Chapter 3 examines the investment performance of funds whose exposures to the risk factors of the Carhart model vary significantly over time. The analysis shows that funds with volatile factor weights achieve on average lower returns than funds with stable factor exposures. After testing for alternative explanations, this result provides evidence that fund managers fail to time risk factors. This finding also contributes to the current debate on whether risk factors can be timed. Chapter 4 addresses the question whether fund managers trade more in times of large market mispricing and, therefore, whether fund turnover is positively correlated to the subsequent fund performance. The results confirm respective findings from earlier research for an international mutual fund sample. They additionally show that this turnover-performance relationship is particularly strong in countries with highly skilled fund managers, who trade more in times of high market opportunities. Furthermore, the effect is stronger in markets with a low performance persistence.

Download or read book Su bios no Paran written by and published by . This book was released on 1971 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Aggregate Mutual Fund Flows and Cross Sectional Anomalies written by Che-Kuan Chen and published by . This book was released on 2015 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the explanatory power of aggregate mutual fund flows for the profitability of price-based (i.e., momentum and 52-week high) and non-price-based (i.e., earnings surprises, profitability, share issuance, accrual and asset growth) anomalies in the cross-section of returns. I find that the flow-based trading of mutual funds contributes to mispricing as measured by the profits to price-based anomalies, especially at times when market-wide funding costs are high. The effect also exists for non-price-based anomalies, but only through the dependence of their profits on momentum. My findings support the view of Lou (2012) and Vayanos and Woolley (2013) that mutual funds' trading on flows creates feedback that strengthens price-based anomalies, as high-performing funds buy additional shares of high-performing stocks and poorly performing funds sell shares of poorly performing stocks. However, the explanatory power of aggregate mutual fund flows for price-based anomaly returns is only partly attenuated by fund-level variables designed to capture the feedback effect. The flow-induced trading by mutual funds appears to contribute to mispricing for reasons beyond the feedback effect.

Download or read book Mutual Fund Flows and Seasonalities in Stock Returns written by Moritz Wagner (Lecturer) and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a flow-based explanation for two long-standing anomalies in empirical finance - the Sell in May effect and the January effect. We find that the aggregate mutual fund flows exhibit similar seasonal patterns as stock returns. The Sell in May effect becomes insignificant in standard statistical tests after controlling for the impact of mutual fund flows on returns, with flow explaining about 54% of the variation in excess returns over the winter months. We also find that flow helps explaining the abnormally high returns of small-capstocks in January. The Sell in May and January effects appear to be primarily a retail money effect. Similarly, the well-known co-movement between flow and market return is only present in retail fund flow. Overall, the evidence suggests that unanticipated rather than expected flow drives our results. Keywords: Mutual funds, Fund flows, Return seasonality"--Page [ii].

Download or read book Mutual Fund Flows and Performance Streaks How Mutual Fund Selection is Driven by Behavioural Biases written by Kai Aschick and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contributes to existing literature by analysing the role of performance streaks in the US mutual fund industry. Existing research suggests that performance streaks, i.e. multiple consecutive months of positive or negative performance, are an important determinant of mutual fund flows. My dataset comprises monthly returns and net-flows from US equity mutual funds from 1996 through 2015. My first analysis shows that streaks are not an indication of performance persistence and should not be used in investment decisions. Next, I develop two forecasting models using streaks based on several different performance metrics, such as excess returns and CAPM-alphas. The first one is a probit model that forecasts future investor sentiment, measured by the sign of future net-flows. This model is very robust to different time period specifications. The second one is a multiple linear regression model that forecasts actual future net- flows. The performance of this model strongly depends on the time period specified, as it performs poorly following the financial crisis. In both models the best-performing specification uses streaks based on CAPM-alphas. However, a Shapley decomposition reveals that streaks are, despite being statistically significant, the least-important predictors of future net-flows. Instead, lagged net-flows are the most-important determinants of future net-flows. The results of this thesis suggest that active streaks tip the scales when investors decide between two or more funds with a comparable track record. Hence, the results presented are ambiguous regarding investor rationality.

Download or read book A Monthly Effect in Stock Returns written by Robert A. Ariel and published by Palala Press. This book was released on 2018-03-03 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact, and remains as true to the original work as possible. Therefore, you will see the original copyright references, library stamps (as most of these works have been housed in our most important libraries around the world), and other notations in the work. This work is in the public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. As a reproduction of a historical artifact, this work may contain missing or blurred pages, poor pictures, errant marks, etc. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.

Download or read book Understanding the Non Linear Relation between Mutual Fund Performance and Flows written by George D. Cashman and published by . This book was released on 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine gross flows to mutual funds and find that existing investors punish poorly performing funds by increasing outflows. We also find that existing and potential investors punish poorly performing funds by reducing inflows. Finally, we uncover that current investors respond to poor performance with the same intensity as they do to good performance. Overall, we conclude that new investors must drive the observed non-linearity between mutual fund performance and net flows. This conclusion runs contrary to the extant literature which generally ascribes the absence of net outflows in the face of poor performance to inactivity by existing fund investors (i.e., they do not exit).

Download or read book Mutual Funds and Mispriced Stocks written by Doron Avramov and published by . This book was released on 2019 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new measure of fund investment skill, Active Fund Overpricing (AFO), encapsulating the fund's active share of investments, the direction of fund active bets with regard to mispriced stocks, and the dispersion of mispriced stocks in the fund's investment opportunity set. We find that fund activeness is not sufficient for outperformance: high (low) AFO funds take active bets on the wrong (right) side of stock mispricing achieve inferior (superior) fund performance. However, high AFO funds receive higher flows during periods of high investor sentiment, when performance-flow relation becomes weaker.

Download or read book What Drives the Smart Money Effect Evidence from Investors Money Flow to Mutual Fund Classes written by George J. Jiang and published by . This book was released on 2016 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: The literature proposes two competing explanations -- the “smart-money” and “persistent-flow” hypotheses -- for the positive relation between mutual fund flow and future fund performance. We examine the flow-performance relation for different classes of U.S. domestic equity mutual funds. Our results show a stronger positive relation for the retail class than for the institutional class. More importantly, the significant relation for the retail class is mainly driven by funds with net outflow. This evidence is inconsistent with the smart-money hypothesis. We further show that retail funds exhibit greater persistence than institutional funds in net outflow. Once we control for expected fund flows, the flow-performance relation is no longer significant. We also perform robustness checks based on international funds and bond funds. The findings are supportive of the persistent-flow explanation.

Download or read book Management of Flow Risk in Mutual Funds written by Martin Rohleder and published by . This book was released on 2018 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is the first to relate the investment practices of U.S. equity mutual funds to their management of flow risk, defined as the adverse effect of investor in- and outflows on fund performance. Using a comprehensive merged sample of 2,585 actively managed U.S. domestic equity funds from the CRSP mutual fund database and the SEC's regulatory N-SAR filings, we are the first to detect differences in funds' responses to flow risk. We find that funds using derivatives, such as options and futures on indices as well as individual stocks, have higher performance than non-using funds. We further show that this outperformance is the result of superior flow risk management using these derivatives and not a result of derivatives based stock-picking or market-timing activities. Overall, our findings document that superior flow management ability is valuable when managing open-end mutual funds and should be considered by investors and researches when evaluating fund performance.

Download or read book The Efficient Market Theory and Evidence written by Andrew Ang and published by Now Publishers Inc. This book was released on 2011 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis (EMH) asserts that, at all times, the price of a security reflects all available information about its fundamental value. The implication of the EMH for investors is that, to the extent that speculative trading is costly, speculation must be a loser's game. Hence, under the EMH, a passive strategy is bound eventually to beat a strategy that uses active management, where active management is characterized as trading that seeks to exploit mispriced assets relative to a risk-adjusted benchmark. The EMH has been refined over the past several decades to reflect the realism of the marketplace, including costly information, transactions costs, financing, agency costs, and other real-world frictions. The most recent expressions of the EMH thus allow a role for arbitrageurs in the market who may profit from their comparative advantages. These advantages may include specialized knowledge, lower trading costs, low management fees or agency costs, and a financing structure that allows the arbitrageur to undertake trades with long verification periods. The actions of these arbitrageurs cause liquid securities markets to be generally fairly efficient with respect to information, despite some notable anomalies.

Download or read book Selling Winners Holding Losers written by Lily Xu and published by . This book was released on 2009 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether U.S. equity mutual funds exhibit a disposition bias, the tendency to sell winners and hold losers, and how this influences performance, investor flows and fund survival. About 30% of all funds exhibit some degree of disposition behavior. Funds with a disposition bias underperform funds that are not disposition prone by 4-6% per year. Moreover, even after controlling for performance, tax overhang and other factors that potentially affect flows, funds with a disposition bias attract significantly smaller flows than other funds. These results suggest that performance and tax efficiency are all important to mutual fund investors. Rational explanations for a disposition bias are not supported by the evidence. However, we find that mutual fund investors are smart enough to minimize investment in disposition-prone funds. As a result, these funds have significantly higher rates of failure than other funds, thereby potentially reducing the impact of irrational trading behavior on security prices.

Download or read book The Mutual Fund Industry written by R. Glenn Hubbard and published by Columbia University Press. This book was released on 2010 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mutual funds form the bedrock of retirement savings in the United States, and, considering their rapid growth over recent decades, are sure to become even more financially critical in the coming decades. Because the size of fees paid by investors to mutual fund advisers can strongly affect the return on investment, these fees have become contentious in Congress and the courts, with many arguing that investment advisers grow rich at the expense of investors. This groundbreaking book not only conceptualizes a new economic model for the industry but uses this model to test price competition between investment advisers. Its highly experienced authors track the growth of the industry over the past twenty-five years and present the arguments and evidence both for and against theories of adviser malfeasance, as well as the assertion that market forces fail to protect investors' returns from excessive fees. The volume briefly reviews the regulatory history of mutual fund fees and leading case decisions addressing excessive fees. It also reveals the extent to which the governance structure of mutual funds impacts fund performance. There is no greater text for those who seek to understand today's mutual fund industry, including investors, money managers, fund directors, securities lawyers, economists, and those concerned with regulatory policy toward mutual funds