Download or read book Essays on Performance of Actively Managed Mutual Funds written by Claudia Peitzmeier and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on the Performance Evaluation of Actively Managed Investment Funds written by Qing Yan and published by . This book was released on 2021 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the performance of hedge funds and actively managed U.S. equity mutual funds. The first chapter examines the relation between hedge funds and the low beta anomaly. Different conditions in the mutual fund and hedge fund industries should lead to different approaches with respect to the low beta anomaly. I find that, unlike most mutual funds, the average hedge fund tends to benefit considerably from the anomaly. About 2.3% per year of apparent alpha for the average hedge fund can be attributed to the low beta anomaly rather than manager skill. Low skill managers are the most reliant on the anomaly to generate returns, with the most reliant underperforming the least reliant by 5.9% per year. The second chapter uses machine learning to dynamically identify and optimally combine the predictors of hedge fund performance. The portfolio formed based on the machine learning models has an out-of-sample alpha of 7.8% per year. The importance of each predictor varies over time, but among the 22 predictors I consider, the consistently important predictors are average return, maximum return, alpha, systematic risk, and beta activity. Machine learning provides valuable, unique information about future hedge fund performance that is not captured by individual predictors. The third chapter studies whether the quality of fund risk management can predict fund performance. I find that the risk management skills of mutual fund managers-as quantified by their funds' maximum drawdowns-are persistent and predictive of subsequent risk-adjusted performance. Funds with relatively strong past performance and relatively low past maximum drawdowns have, on average, an out-of-sample alpha of 2.68% per year. That alpha is magnified when markets are turbulent-a time during which risk management skills should be most valuable. Investors are averse to drawdown risk. After controlling for typical measures of past performance, fund flows are still a decreasing function of maximum drawdowns, particularly among investors with greater risk aversion and during times of generally heightened risk aversion.
Download or read book Essays on Information Asymmetry Active Management and Performance written by Ivan Stetsyuk and published by . This book was released on 2016 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: Agency theory suggests that information asymmetry between mutual fund managers and mutual fund investors can be mitigated if managers are compensated for the private information that influences mutual fund risk and performance. This study investigates the role of active management in influencing returns and return volatility of mutual funds. Chapter 1 investigates whether real estate mutual funds (REMFs) outperform Carhart's (1997) four-factor and index benchmarks using daily return data from the CRSP survivorship bias-free mutual fund database from September 1998 to December 2013. We employ generalized autoregressive conditionally heteroscedastic (GARCH) volatility models to estimate more precise alphas than those generated in the extant studies. We document that risk-adjusted alphas of actively managed REMFs are statistically and economically significant, reflecting the informational advantage and skills of active managers. We also show that actively managed REMFs outperform the real estate index benchmark (Ziman Real Estate Index) and generate a yearly buy-and-hold abnormal return of 3.64%. Active management, therefore, provides value beyond the diversification benefits that can be generated by investing into the real estate index. While active managers of REMFs generate abnormal returns (gross of expenses), they capture the entire amount themselves, sharing none with investors (net of expenses). Accordingly, the average abnormal return to investors is close to zero due to expenses associated with REMFs, such as management fees, 12b-1 fees, waivers, and reimbursements. Finally, we find that passively managed REMFs do not generate abnormal risk-adjusted alphas in Carhart's (1997) four-factor model. Chapter 2 examines managed volatility mutual funds (MVMFs) that utilize a range of investment strategies focused on portfolio volatility. These funds have increased in popularity in the wake of the financial crisis (December 2007 to June 2009) which introduced considerable volatility into the markets. We test whether MVMFs provide better performance during periods of recessions and expansions as compared to conventional mutual funds (MFs). We obtain several interesting results. First, MVMFs underperform compared to conventional MFs by more than 2% during the entire sample period. Second, MVMFs outperform conventional MFs in recessions by over 4% annually. Third, MVMFs underperform conventional MFs by more than 2.5% during expansions. Our results suggest that MVMFs can benefit investors during periods of recessions at the cost of performing worse during expansions. Chapter 3 studies MF return volatility patterns by testing a host of hypotheses for MFs with various style objectives. To conduct the tests, we use daily returns data from the CRSP survivorship bias-free mutual fund database from September 1998 to December 2013. We examine volatility patterns across the following nine styles: Passively Managed, Actively Managed, Sector, Capitalization, Growth and Income, Income, Growth, Hedged, and Dedicated Short Bias. We employ the exponential generalized autoregressive conditionally heteroscedastic (EGARCH) volatility model. Several results are obtained. First, we show that the financial crisis of 2007-2009 had a positive or a negative impact on volatility, depending on the investment style. Second, MF volatility behavior exhibits significant cluster effects in all styles, indicating that larger return shocks lead to greater increases in return volatility. Third, shock-persistence patterns differ across various MF styles with shocks to Dedicated Short Bias MFs being the least persistent and Capitalization and Growth and Income being the most persistent. Lastly, there is considerable negative asymmetry in MF return volatility changes in response to good and bad news in the sense that negative shocks to MF returns increase volatility more than positive shocks of the same magnitude for many Actively Managed MF styles. Significant negative asymmetry of this type makes the industry vulnerable to market downturns and should be addressed by regulators, MF managers, and investors.
Download or read book Essays on Mutual Fund Performance written by Gulnara R. Zaynutdinova and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter two investigates timing abilities of alpha-opportunities by mutual fund managers. Active portfolio management is costly and may not deliver higher net returns to investors in the absence of sufficient alpha-opportunities when, e.g., stock returns are predominantly driven by systematic factors and highly correlated. Thus, mutual funds should engage in less active trading when stock valuation is expected to be less divergent. Our results show that mutual funds on average have the ability timing alpha-opportunities, with large-value and large-growth funds exhibiting the strongest timing skill. The results are robust when we control for past fund flows and returns, macroeconomic variables, and other potential timing skills. More importantly, funds with significantly positive timing skill earn 0.05% higher monthly returns, as measured by four-factor alpha, in subsequent month than those with negative timing skill. Our study contributes to the existing literature by proposing a novel measure to assess an important attribute of mutual fund active management ability.
Download or read book Essays on the Performance of Actively Managed Mutual Funds written by Ulf Herrmann and published by . This book was released on 2013 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays in Finance written by Ziwei Zhao (Researcher in economics) and published by . This book was released on 2020 with total page 131 pages. Available in PDF, EPUB and Kindle. Book excerpt: The three essays of my dissertation are in the asset pricing area. The first essay is on the topic of how the popularity of ETFs affects active mutual funds. The second essay is about individuals' risk preferences and how early childhood experience can shape one's risk preference. The third essay is on whether active managers' education can affect their skills. Recently, the media frequently quotes active managers who claim that ETFs impede their ability of generating prots. They argue that ETFs are draining liquidity from the market and making it harder for them to generate alphas. However, a recent paper by Ben-David et al.(2018) argues that ETFs generate new inefficiencies into the underlying stocks in ETFs. Thus the popularity of ETFs should provide more opportunities for active managers to generate alpha. My first essay find that the popularity of ETFs prompts active mutual fund managers to conduct more informed trades that generate alphas. Specifically, the trades of skilled active managers better predict the future performance of stocks after the passive ownership in those stocks increase. This paper directly addresses the question of whether ETF ownership affects market efficiency by considering new inefficiencies caused by passive ETFs and whether those inefficiencies create arbitrage opportunities for active mutual funds. The second essay (co-authored) studies how our early childhood interactions with parents shape our risk preferences. Specifically, recent literature argues that only the more recent macro-economic experiences matters in shaping our risk-taking behaviors (Malmendier and Nagel, 2011), which indicates that one's earlier childhood experience is not important. Using an IV setting, we find that parents' risk-taking positively affects children's risk-taking. More importantly, exploiting a finding that parents spend more quality time with their first child, we find that this effect we identified comes mainly from one's childhood interaction with her parents, confirming a nurturing channel. This parental effect doesn't fade away with time/when children move away from parents. The third essay looks at how a mutual fund manager's early personal experience, education, affects her skills to generate performance. By showing active mutual fund managers perform better in industries that are related to their education major, this paper provides evidence that active managers have skills in those industries that they have expertise in. The first essay focuses on the institutional investors; the second essay focuses on individual investors and their early experience; while the third essay links the first two by looking at one's early experience and how it affects institutional investors such as active fund managers.
Download or read book Two Essays on Stock Preference and Performance of Institutional Investors written by Jin Xu (doctor of finance.) and published by . This book was released on 2008 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt: Two essays on the stock preference and performance of institutional investors are included in the dissertation. In the first essay, I document that mutual fund managers and other institutional investors tend to hold stocks with higher betas. This effect holds even after precisely controlling for stocks' risk characteristics such as size, book-to-market equity ratio and momentum. This is contrary to the widely accepted view that betas are no longer associated with expected returns. However, these results support my simple model where a fund manager's payoff function depends on returns in excess of a benchmark. For the manager, on the one hand, he tends to load up with high beta stocks since he wants to co-move with the market and other factors as much as possible. On the other hand, the manager faces a trade-off between expected performance and the volatility of tracking error. My model thus shows that the manager prefers to choose higher beta than his benchmark, and that his beta choice has an optimal level which depends on his perceived factor returns and volatility. My empirical findings further confirm the model results. First, I show that the effect of managers holding higher beta stocks is robust to a number of alternative explanations including the effects of their liquidity selection or trading activities. Second, consistent with the model predictions of managers sticking close to their benchmarks during risky periods, I demonstrate that the average beta choice of mutual fund managers can predict future market volatility, even after controlling for other common volatility predictors, such as lagged volatility and implied volatility. The second essay is the first to explicitly address the performance of actively managed mutual funds conditioned on investor sentiment. Almost all fund size quintiles subsequently outperform the market when sentiment is low while all of them underperform the market when sentiment is high. This also holds true after adjusting the fund returns by various performance benchmarks. I further show that the impact of investor sentiment on fund performance is mostly due to small investor sentiment. These findings can partially validate the existence of actively managed mutual funds which underperform the market overall (Gruber 1996). In addition, when conditioning on investor sentiment, the pattern of decreasing returns to scale in mutual funds, recently documented in Chen, Hong, Huang, and Kubik (2004), is fully reversed when sentiment is high while the pattern persists and is more pronounced when sentiment is low. Further results suggest that smaller funds tend to hold smaller stocks, which is shown to drive the above patterns. I also document that smaller funds have more sentiment timing ability or feasibility than larger funds. These findings have many important implications including persistence of fund performance which may not exist under conventional performance measures.
Download or read book Three Perspectives of Mutual Fund Performance written by Steve A. Nenninger and published by . This book was released on 2009 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines mutual fund performance from the points of view of three distinct, but interrelated parties: individual investors, financial advisors, and the boards of directors of mutual fund companies. In the first essay, the flow-performance sensitivity of no-load funds and the three main classes of load fund shares are compared, assuming investment advisors are more likely to guide the decision-making process of load fund investors. In the second essay, the timing of the decision to replace fund managers is examined. In the third essay, performance of actively managed mutual funds are separately examined during good and bad states of the market to test whether mutual funds perform differently under different market conditions.
Download or read book Essays on Mutual Funds written by Hongxun Ruan and published by . This book was released on 2018 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, "Social Capital and Innovation: Evidence from Connected Holdings," I investigates how social capital affects innovation. I measure a firm's social capital with connected holdings, which is the fraction of equity of a particular firm held by mutual funds whose managers are connected to the firm's board members through educational networks. I use plausibly exogenous variation in the size of board members' networks as an instrument for connected holdings. I find higher connected holdings lead to larger number of patents granted, more patent citations, and higher firm value created by patents. Connected holdings foster innovation by helping to reduce short-term capital market pressures and to increase management job security. The second chapter, "Marketing Mutual Funds," co-authored with Nikolai Roussanov and Yanhao Wei, we investigate marketing and distribution expenses' impact on the allocation of capital to funds and on returns earned by mutual fund investors. We develop and estimate a structural model of costly investor search and fund competition with learning about fund skill and endogenous marketing expenditures. We find that marketing is nearly as important as performance and fees for determining fund size. Restricting the amount that funds can spend on marketing substantially improves investor welfare, as more capital is invested with passive index funds and price competition decreases fees on actively managed funds. Average alpha increases as active fund size is reduced, and the relationship between fund size and fund manager skill net of fees is closer to that implied by a frictionless model. Decreasing investor search costs would also imply a reduction in marketing expenses and management fees as well as a shift towards passive investing.
Download or read book Essays on Mutual Fund Performance and Predictability written by Yu Xia and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This thesis consists of two essays on evaluating mutual fund performance and its predictability. In the first essay, I study the ex ante predictability of 12 well-known predictors for fund performance from investors' perspective. The 12 predictors cover three major categories: fund characteristics, fund performance, and holding-based activeness measures, which are constructed using real-time information. For performance evaluation, I exploit two types of fund picking strategies with either rule-based approach or machine learning methods and find that utilizing machine learning can deliver superior real-time economic gains for investors with fund short-term performance being the primary driver underlying predictability. Specifically, using variable selection methods such as LASSO and elastic net at individual predictor level can generate annual 1.3%-1.7% real-time alphas after adjusting for standard risk factors. The essay further examines whether real-world investors react to those well-known predictors when evaluating mutual fund performance. Using a novel approach to decomposing fund returns, I find that conditional on investors' usage of CAPM, investors react to the components of CAPM alpha implied by predictors in different ways, and investor reaction to predictive information embedded in predictors is stronger within aggressive growth funds. These results provide empirical support for Gârleanu and Pedersen (2018) and suggest ex ante predictability exists not due to lack of investor reaction but as the compensation for employing costly algorithms to identify skilled managers.The second essay examines how decision-making hierarchy in team-managed U.S. equity mutual funds affects their performance and risk-taking behavior. Employing a unique hand-collected dataset, we find that vertically-managed funds with lead managers earn 75 bps per year lower Fama-French five-factor alpha than their horizontally-managed counterparts. Moreover, vertically-managed funds hold less concentrated portfolios and are exposed to lower residual risk, thus showing signs of inferior security selection ability. Using mutual fund industry as a laboratory, the second essay provides evidence supporting a horizontal decision-making structure in organizations functioning in an uncertain expectation environment. These results echo similar mechanisms as in recent cross-country studies on the benefits of democratic form of government for country's economic growth"--
Download or read book Three Essays on Mutual Funds written by Xuemei Guo and published by . This book was released on 2017 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the determinants of mutual fund flows and mutual fund performance. The first chapter examines the response of fund investors to style volatility and the impact of style volatility on the flow-performance relationship. Three main empirical findings are obtained using both a portfolio approach and a multivariate regression approach. First, I find that there is a significant positive relationship between the style volatility and the subsequent fund flows to mutual funds. This finding can be interpreted as either fund managers having style timing ability or fund managers catering to investors preferences or tastes. Second, the positive relationship between past style volatility and fund flows is less pronounced for funds with superior past performance. Lastly, fund style volatility has a dampening effect on the flow-performance relationship: the flow-performance sensitivity weakens by 12% when the past style volatility increases by one standard deviation. It is likely that performance is perceived as a less informative signal of investment ability for fund managers who follow inconsistent styles over time. The second chapter studies how the response of fund investors to past risk varies over business cycles. I employ the NBER boom indicator, the Consumer Sentiment Index, and the National Activity Index to proxy for economic conditions. I find that mutual fund investors react differently to risk across economic environments. Funds with more volatile past returns discourage fund investors. The investors’ demand for actively managed funds is higher under good market conditions. Fund flows are less responsive to risk during expansionary economic periods. This finding may indicate that fund investors are risk averse and become less risk averse in good market states. The third chapter empirically examines whether mutual fund performance is affected by prior family performance. I propose two testable hypotheses: the information and resource sharing hypothesis and the cross-fund subsidization hypothesis. The empirical findings suggest that there is a significant positive relationship between prior family performance and subsequent fund performance. This finding is consistent with the hypothesis that mutual funds in the same family share informational resources. This positive relation also justifies the finding in the mutual fund flow literature that fund flows are higher for funds with higher past family performance. Furthermore, I find that the predictive power of the prior family performance is stronger in larger fund families.
Download or read book Three Essays on the Strategies of Mutual Funds written by Zhi Wang and published by . This book was released on 2004 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Two Essays on Mutual Fund Managerial Skills and Performance written by Ao Wang and published by . This book was released on 2021 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays that study mutual fund managerial skills and performance.Understanding whether mutual funds have skills is important as it could help investors make investment decision. My fist essay studies whether and how fund size affects managers' risk-taking behavior in the setting of fund mergers. I test the relation between fund size and risk-shifting. The main findings are as follows. First, acquiring fund managers' risk-taking declines as size increases resulting from mergers. The decline in risk-taking remains significant after controlling for fund characteristics, diversification effect, and portfolio's systematic risk exposure that can be correlated with managers' investment choices. Second, liquidity is a driving factor for the negative impact of size on managers' risk-taking. Third, I decompose fund size into two components based on either liquidity or risk-taking and examine which component(s) correlate with fund performance. I document that risk-taking is, beyond liquidity, another underlying mechanism for decreasing returns to scale.In the second essay, I study the timing ability of mutual funds in different sentiment periods. I first use DGTW (1997) style timing measure (CT) to examine if mutual funds perform better in high sentiment periods when stock mispricing is enlarged, providing more trading opportunities for mutual funds. Results show that mutual funds have better style timing ability in high sentiment than in low sentiment. The result is robust when I use alternative sentiment measures and different model specifications. Moreover, the style timing ability in high sentiment periods is more pronounced for less expensive funds with lower turnover and active shares. Then I investigate the source of this timing ability using 9 well-known stock return anomalies. I construct an anomaly timing measure (AT) using each of the 9 individual anomalies as well as the composite anomaly. AT is developed to detect whether fund managers could successfully time a certain anomaly. I find that mutual funds have better anomaly timing ability in composite anomaly and 4 contrarian anomalies which are investment-to-assets, asset growth, composite equity issue and net operating assets. Furthermore, I provide evidence that mutual funds with better timing abilities could outperform overall.
Download or read book Two Essays on Mutual Fund Performance written by Andrew A. Lynch and published by . This book was released on 2012 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: In these two essays, I examine the relation between mutual fund characteristics and fund performance. In the first essay, I test the impact of liquidity and liquidity risk on mutual fund returns. I find that equity funds with the most illiquid holdings outperform those with the most liquid holdings by as much as 4.40 percent annually. Funds with high liquidity beta only marginally outperform those with low liquidity beta on average. However, this outperformance is significantly stronger after excluding periods of extreme market illiquidity. Testing the liquidity and liquidity risk effects jointly reveals that both independently positively influence fund returns. In the second essay, I test the relation between fund fees and fund performance. Theory suggests that mutual fund fees should be positively related to before-fee returns (Berk and Green (2004)), while recent empirical work documents a negative relation (Gil-Bazo and Ruiz-Verdu (2009)). I find that the previously identified negative relation is not robust to alternative empirical specifications. Portfolio sorting and regression analysis with controls for fund characteristics find a positive relation between before-fee returns and expense ratios. I also find a positive relation between before-fee returns and management fees, the fee used to compensate fund managers. Extending the analysis to proxies for manager skill, I find a positive relation between fees and both trading skill and active share of holdings.
Download or read book Two Essays On Mutual Funds written by Pramodkumar Yadav and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first essay examines whether fund flows of mutual fund family employees are smart. Using hand-collected data on investment of fund family employees, I show that employee flows predict fund performance up to two years. Moreover, employee flows lead flows of other investors, but not vice versa, further indicating that employee flows are smart. The predictive power of employee flows is stronger when fund family employees are located close to fund managers, pointing to employees exploiting their proximity to managers to learn about the managers' skill or effort. The results do not appear to be driven by ownership changes of portfolio managers themselves, family cross-subsidization efforts, plan design, or employee sophistication.The second essay (with Daniel Dorn) examines psychological cost of team structure in mutual fund industry. We show that team-managed mutual funds have a greater propensity to sell winners and hold losers than solo funds. This propensity is costly as winners sold outperform losers held by 56bp during the next quarter relative to stocks with similar size, book-to-market, and momentum characteristics. Disposition effects are strongest when positions are initiated by a subset of the team who thus bears special responsibility. In contrast, there is no disposition effect when positions are initiated by all team members. This suggests that the difficulty of admitting mistakes to peers (vanity), rather than conformity to in-group pressures (groupthink), poses a costly challenge for teams.
Download or read book Essays in Empirical Finance written by Xiaolu Wang and published by . This book was released on 2010 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains two essays in empirical finance. The first essay studies the mutual fund industry, and the second essay looks into the stock market. Both studies provide insights in the underlying mechanism of some asset return patterns identified from the data currently available.The first essay investigates the sources of a recently identified performance pattern in mutual funds. Specifically, actively managed mutual funds, in general, underperform a passive benchmark; however, some recent studies find they, in fact, outperform the benchmark in bad economic states. I examine whether a state dependent risk shifting behavior of mutual fund managers contributes to this performance difference across states, and find supportive evidence. As shown in prior studies, the risk shifting behavior is motivated by a non-linear flow-performance relationship. Using a piece-wise linear regression, I demonstrate that the non-linearity exists mainly in good states; whereas in bad states, the flow-performance relationship is close to linear. Thus, non-zero risk shifting incentives are only expected in good states. I empirically measure these incentives in good states, and show that managers do react to the "gambling" (i.e., positive) incentives. In addition, higher "gambling" incentives are found to be associated with lower fund performance.The second essay, based on joint work with Hai Lu and Kevin Wang, examines how stock price shocks in the absence of public announcement of firm specific news affect future stock returns. We find that both large short term price drops and hikes are followed by negative abnormal returns over the subsequent twelve months. The pattern of asymmetric drifts, the return continuation for negative shocks versus the return reversal for positive shocks, is puzzling. We explore whether investor disagreement can explain the puzzle and find that the evidence is consistent with predictions of disagreement theory. Moreover, price shocks with public news disclosures are followed by weaker drifts, suggesting that reduction of information asymmetry from public disclosures mitigates disagreement-induced overpricing.
Download or read book Essays on Mutual Fund Performance and Organization written by Iordanis Karagiannidis and published by . This book was released on 2007 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt:
