Download or read book Incentive Fees and Mutual Fund Volatility Timing written by Erasmo Giambona and published by . This book was released on 2008 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that compensation incentives partly drive fund managers' market volatility timing strategies. Larger management fees are associated with less counter-cyclical or more pro-cyclical volatility timing. Fund investment objectives and styles also partly determine volatility timing. Funds with more aggressive styles time volatility more counter-cyclically. Thus, managers may try to outperform the general market by adopting aggressive styles, while dynamically hedging portfolio volatility using counter-cyclical volatility timing. We also find that fund managers systematically change their portfolio betas in response to aggregate equity fund cash flows. The average effects of volatility timing and fund flow timing on fund performance are mostly positive for funds that increase their betas when conditional volatility and fund flows increase (i.e., pro-cyclical timers).

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 Market Volatility and Perverse Timing Performance of Mutual Fund Managers written by David A. Volkman and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Initiated by recent volatility in the equity markets, I investigate performance evaluation methods and the mutual fund managers' ability to select undervalued investments and time major market movements during the high-market-volatility period of the 1980s. Specifically, I examine mutual fund managers' stock selection and market timing abilities by employing a five-factor risk-adjusted model based on Carhart's four-factor loading model and Bhattacharya and Pfleiderer's quadratic timing model adjusted for perverse timing behavior. Individually, some managers persistently affect fund performance through the selection of undervalued investments, however, at the expense of timing performance. In addition, funds that demonstrate an ability to time major market movements showed persistence in timing performance before and after the October market crash of 1987.

Download or read book Volatility Timing in Mutual Funds written by Jeffrey A. Busse and published by . This book was released on 1998 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Timing Performance of Local Versus Foreign Mutual Fund Managers written by Stephen Tschanz and published by . This book was released on 2010 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Volatility Managed Portfolios of Mutual Funds written by Jianhua Gang and published by . This book was released on 2018 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: Performance evaluation of mutual funds using factor pricing models is usually distorted by the existence of a volatility anomaly and correlated residuals. By augmenting the Fama-French five-factor model with an active peer benchmark, we eliminate the measurement errors caused by these distortions. We find that the APB-augmented five-factor model can select mutual fund portfolios with superior out of sample alphas. However, the excess portfolio returns are volatile and subject to crash risk. A risk management strategy which uses the past volatility of the mutual fund portfolio returns to scale the investment positions can help reduce the volatility of the portfolio returns and avoid extreme losses. Previous studies on stock and currency portfolios find that such a risk management technique also increases the Sharpe ratio of the portfolios. However, we find that the net impact of the risk management on the Sharpe ratio of mutual fund portfolios depends on the investment style of the mutual funds in the fund portfolios. Similar to the stock and currency portfolios, the Sharpe ratios of the mutual fund portfolios can be increased by the risk management if the portfolios are formed in mutual funds which specialize in large cap stocks. By contrast, risk management reduces the Sharpe ratios of portfolios which include small stocks-focused funds. The reason is that the mutual funds which specialize in small stocks relies more on their abilities to take on more factor risks when the factor returns are high to generate returns. Volatility timing reduces the premium of those funds' market timing skills. Compared to investors in mutual funds which specialize in value stocks, investors in growth stocks-focused mutual funds can better enhance their market timing skills by the risk management technique. More specifically, after volatility timing, the growth stocks-focused mutual fund investors are able to take on more factor risks when the factor returns are high and gain higher average returns.

Download or read book On the Regulation of Fee Structures in Mutual Funds written by Sanjiv Ranjan Das and published by . This book was released on 1998 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We offer an alternative framework for the analysis of mutual funds and use it to examine the rationale behind existing regulations that require mutual fund advisor fees to be of the 'fulcrum' variety. We find little justification for the regulations. Indeed, we find that asymmetric 'incentive fees' in which the advisor receives a flat fee plus a bonus for exceeding a benchmark index provide Pareto-dominant outcomes with a lower level of equilibrium volatility. Our model also offers some insight into fee structures actually in use in the asset-management industry. We find that when leveraging is not permitted and the fee structure must be of the fulcrum variety, the equilibrium fee in our model is a flat fee with no performance component; while if asymmetric incentive fees are allowed and leveraging is permitted the equilibrium fee is an incentive fee with a large performance component. These predictions match observed fee structures in the mutual fund industry and the hedge fund industry, respectively.

Download or read book Fee Speech written by Sanjiv Ranjan Das and published by . This book was released on 1998 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Investment Advisers Act of 1940 (as amended in 1970) prohibits mutual funds in the US from offering their advisers asymmetric 'incentive fee' contracts in which the advisers are rewarded for superior performance via-a-vis a chosen index but are not correspondingly penalized for underforming it. The rationale offered in defense of the regulation by both the SEC and Congress is that incentive fee structures of this sort encourage 'excessive' risk-taking by advisers. The paper uses an adverse selection model with multiple funds and multiple risky securities to study this issue. We find that incentive fees do, as alleged, lead to more (and suboptimal) risk-taking than do symmetric 'fulcrum fees.' Nonetheless, from the more important welfare angle, we find that investors may be strictly better off under asymmetric incentive fee structures. Thus, there appears to be little justification for the regulation.

Download or read book Mutual Fund Skill in Timing Market Volatility and Liquidity written by Jason Foran and published by . This book was released on 2017 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate both market volatility timing and market liquidity timing for the first time among UK mutual funds. We find strong evidence that a small percentage of funds time market volatility successfully, i.e., when conditional market volatility is higher than normal, systematic risk levels are lower. The evidence around market liquidity timing ability is similar although it is slightly less prevalent compared to volatility timing. Here, funds lower the fund market beta in anticipation of reduced market liquidity. We also find a positive relation between liquidity timing ability and fund abnormal performance where skilled liquidity timers outperform unskilled timers by around 3% p.a. - though this finding is driven by poor liquidity timing funds going on to yield negative alpha. However, despite the evidence of volatility and liquidity timing ability among funds, we fail to find in support of persistence in this timing. We find little evidence supporting market return timing ability.

Download or read book On the Regulation of Mutual Fund Fee Structures written by Rangarajan K. Sundaram and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new framework for the analysis of mutual funds and use it to examine the rationale behind existing regulations that require mutual fund adviser fees to be of the quot;fulcrumquot; variety. We find little justification for the regulations. Indeed, we find that asymmetric quot;incentive feesquot; in which the adviser receives a flat fee plus a bonus for exceeding a benchmark index provide Pareto-dominant outcomes with a lower level of equilibrium volatility. Our model also offers some insight into fee structures actually in use in the asset-management industry. We find that when leveraging is not permitted and the fee structure must be of the fulcrum variety, the equilibrium fee in our model is a flat fee with no performance component; while if asymmetric incentive fees are allowed and leveraging is permitted the equilibrium fee is an incentive fee with a large performance component. These predictions match observed fee structures in the mutual fund industry and the hedge fund industry, respectively.

Download or read book The X Discipline written by Paul W. Accampo and published by Trafford Publishing. This book was released on 2006-05-19 with total page 330 pages. Available in PDF, EPUB and Kindle. Book excerpt: When was the last time your broker called to tell you to sell? During the 32-month bear market between March 2000 and March 2003, "buy and hold" advice from brokers and financial advisors failed to stem portfolio losses ranging from 40 to 80%. People lost money for one reason: they failed to sell. There's no safe haven where you can buy a stock and forget about it. Have you lost faith in the individuals and institutions that recommended your investments? Are you looking for a better way? This rare, realistic book offers a, unique, practical alternative depending on others for advice and to the risks, effort, and time involved in managing a stock portfolio yourself. This book is specific - instead of the usual bland list, the author escorts you into the internals of websites with down-to-the-mouseclick procedures for extracting what you need to make clear-cut decisions. He helps you build two essential (but usually omitted) skills for investing: how to critically read the news and control your emotions. His disciplined approach to selling works under all economic conditions to protect you against market downturns; yet, the search that yields high-performing low-volatility funds requires only moderately frequent trading and only about one hour a week of your time. The method frees you from the brokers and financial advisors who have not the skills, methods, or incentive to tell you when to sell - and eliminates their exorbitant fees. With numerous examples and detailed guidance, The X-Discipline shows you how to anticipate market moves by understanding the impact of news events. It helps you resist the temptation to react emotionally when the market gets volatile or turns against you. No longer dependent on others' advice, you can use ultra-discount brokers to trade low cost efficiently-run funds. Synopsis of the Book The X-Discipline is organized into four Parts that let you to use it in different ways. If you want to sit down and surf your way through the steps, start with Chapter 1 and work through to Chapter 7. Your first session will take two to three hours, during which you will find the dogs in your portfolio and build a list of potential winners. With repetition, running through the five steps will require only a few minutes weekly. Because it focuses on process, Part 1 is light on explanation. Each Part 1 chapter has a Part 2 counterpart that goes into greater detail on the origin and reasoning behind the strategy and on potential problems. You can read Part 2 sequentially or use it as a reference. If you want to learn about The X-Discipline before adopting it, begin with Chapter 8 in Part 2. Part 3 has additional studies and time saving information, and Part 4 gives specific procedures for accessing websites. Updates to Part 4, which will change as websites change, are available on www.x-discipline.com Part 1: Immediate Results! Chapter 1: Charting Basics describes the use of charts to identify and measure trends, applying a technique used by experienced traders to identify trend reversals, which are key buy or sell signals. Chapter 2/Step 1: Determine the Market Stage helps you use the trend of the NASDAQ Composite Index to determine the "Stage" of the market, which helps you decide how much of your capital to put at risk. Chapter 3/Step 2a: Finding Mutual and ETF Winners introduces fund screeners, for exchange-traded and mutual funds. These online applications produce a list of the best performing funds during the most recent one to three months. Chapter 4/Step 2b&c: Selecting the Best of the Best shows you how to use the relative strength chart application to trade off high performance and low volatility, and how to eliminate mutual funds having undesirable attributes. Chapter 5/Step 3: Sell - Before You Buy describes planning your exit strategy, detecting failing performance and deciding whether when to sell. Chapter 6/Step 4: Review the News. News moves prices, and more of your decisions will turn out right if you consider real world factors. Chapter 6 shows you how to go online for quick news updates, to employ critical thinking to assess the relevance and influence of what you read, and to create personal "outlook statement," that summarizes where you think markets are headed. Chapter 7/Step 5: Taking Action. If you did not have emotions, Chapter 7 would be one sentence: "Click on sell." This chapter helps you deal with the fear that grips you when you actually have to commit to your plan. Part 2: The X-Discipline explained Chapter 8: The Case for Disciplined Investing presents the strategy of the X-Discipline, reviews market action over the last five years, shows how holding during a major downturn can create a severe loss, and gives an example of how selecting top performing funds at key times can generate high returns. Chapter 9: Funds: The Good, the Bad, and the Ugly examines the relationship between risk and volatility, presents the case for using no-load mutual and exchange-traded funds as your primary investment vehicle, and provides a different perspective for you as a fund owner: the manager of your investment team. The chapter also explains the complex topic of fund costs and the Morningstar system for categorizing funds. Chapter 10: Why Your Broker Doesn't Call describes how brokers operate, deals with the housekeeping necessary before you commit real money, helps you determine how much you have available to invest, and explains how to diversify. It explains tax issues and the types of accounts, the services needed from your broker, and how to avoid broker transaction fees. Chapter 11: Measuring the Market explains in detail the significance of long- and short-term trends and shows you how to gauge the mood of the markets to determine the percentage of your assets to put at risk. Sometimes, your best investment is cash. Chapter 12: The Challenges of Fund Screening is the first of three chapters that cover three phases of qualifying funds as "buy candidates." It gives detailed examples on how to search for funds and guides you in selecting the best screener for your needs. Chapter 13: Excluding Volatility shows you how to visually identify volatile or weak funds through an example using the relative strength chart application. Chapter 14: The Pre-Flight Checkup discusses key facts to check on any fund before you buy. Chapter 15: The Art of Firing a Portfolio Manager revisits selling with a detailed analysis and addresses with examples the interpretation of charts under volatile and non-volatile conditions. Chapter 16: Nuclear War and Other Negatives discusses how to employ critical thinking to use the news to arrive at your own opinion. Without an independent opinion on how to approach the markets, you will tend to follow other people's ideas in place of your own strategy. Chapter 17: Investing is Emotional! explains the emotions that affect investors, points out that failure to control them will take you off your plan, and offers suggestions on how to understand them and regain control. Chapter 18: Tracking Your Portfolio introduces a method to track progress, balance your portfolio, and act on sell signals. Chapter 19: Bond Funds: An Equity Alternative. The recent long-term bear market made the case for investing in bond funds - under the right circumstances. This chapter shows you when to be in bond funds and how to find and evaluate them. Part 3: The Appendices Appendix 1: The Internet Bubble is a case study that follows the NASDAQ Composite Index through the bull market run up and the dot-com crash, showing you how the X-Discipli

Download or read book The Joint Effect of Market Timing and Volatility Timing of German Growth Mutual Fund Managers written by Minghui Zhang (M.Fin.) and published by . This book was released on 2011 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Managerial Activeness and Mutual Fund Performance written by Hitesh Doshi and published by . This book was released on 2015 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: A closet indexer is more likely to meet a value-weighted investment benchmark by value-weighting the portfolio. Following this intuition, we introduce a simple measure of active management, the absolute difference between the value weights and the actual weights held by a fund, averaged across its holdings. This proxy captures managerial skill: Active funds outperform passive ones by 2.5% annually. Compared to known measures of skill, our proxy robustly predicts fund flows, asset growth, factor-adjusted performance, and value added. Its predictive ability is orthogonal to that of other measures and is robust to controlling for volatility timing, past performance, and style.

Download or read book Performance Evaluation of Mutual Fund Investments written by Ioannis D. Vrontos and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Extending previous work on mutual fund pricing, this paper introduces the idea of modeling the conditional distribution of mutual fund returns using a fat tailed density and a time-varying conditional variance. This approach takes into account the stylized facts of mutual fund return series, that is heteroscedasticity and deviations from normality. We evaluate mutual fund performance using multifactor asset pricing models, with the relevant risk factors being identified through standard model selection techniques. We explore potential impacts of our approach by analyzing individual mutual funds and show that it can be economically important.

Download or read book Time Varying Incentives in the Mutual Fund Industry written by Jacques Olivier and published by . This book was released on 2013 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper re-examines the incentives of mutual fund managers arising from investor flows. We provide evidence that the convexity of the flow-performance relationship varies with economic activity. We show that the effect is economically large and is driven neither by abnormal years nor by outliers. We test two possible channels through which this pattern may arise. We investigate implications of the time-varying convexity for the incentives of managers to alter strategically the risk of their portfolios. We provide evidence supporting a 'conditional' tournament hypothesis: poor mid-year performers increase the risk of the portfolio only when economic activity is strong. Finally, we briefly discuss some methodological implications.

Download or read book Of Tournaments and Temptations written by Keith C. Brown and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We test the hypothesis that when their compensation is linked to relative performance, managers of investment portfolios likely to end up as quot;losersquot; will manipulate fund risk differently than those managing portfolios likely to be quot;winners.quot; An empirical investigation of the performance of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that mid-year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid-year winners. Further, we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.

Download or read book The Trend Toward Incentive Fees to Investment Advisers of Mutual Funds written by Murray Alan Barnett and published by . This book was released on 1970 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: