We conduct the first comparative analysis of the financial performance of European green, black (fossil energy and natural resource) and conventional mutual funds. Based on a unique dataset of 175 ...green, 259 black and 976 conventional mutual funds, the investigation contrasts the financial performance of the three dissimilar investment orientations over the 1991-2014 period. Over the full sample period, green mutual funds significantly underperform relative to conventional funds, while no significant risk-adjusted performance differences between green and black mutual funds could be established during the same period. Environmentally friendly investment vehicles display a significant exposure to small cap and growth stocks, while black funds are more exposed to value stocks. Remarkably, the green funds' risk-adjusted return profile progressively improves over time until no difference in the performance of the green and the conventional classes could be discerned. Further evidence suggests that the green funds are beginning to significantly outperform their black peers, especially over the 2012-2014 investment window.
Using a comprehensive list of terrorist attacks over three decades, we find that aggregate investor risk aversion inversely relates to terrorist activity in the United States. A one standard ...deviation increase in the number of attacks each month leads to a $75.09 million drop in aggregate flows to equity funds and a $56.81 million increase to government bond funds. Tests on alternative channels further suggest that the shift in aggregate risk aversion is driven mainly by an emotional shock rather than changes in wealth or the outside environment. We also investigate possible alternate explanations for reduced flows to risky assets. Our evidence is consistent with a fear-induced increase in aggregate risk aversion.
In this study, we examine how the prior experiences of decision makers systematically influence their assessment of and responses to negative performance feedback. We posit that, although greater and ...more specialized experiences enable managers to build relevant knowledge and expertise in specific domains, they also make them overconfident in their abilities and strategies. Such experience-induced overconfidence further leads to distortions in the performance assessment process, hindering a firm's ability to recognize and respond to poor performance. We empirically test these arguments in the context of U.S. mutual fund managers making investment decisions in response to fund performance below aspirations. As hypothesized, we find that more experienced and more specialized fund managers change their investment decisions less when faced with negative performance feedback than managers who are less experienced and less specialized. In additional analyses, we further show that the lower responsiveness of more experienced (specialized) managers is associated with the fund's lower future performance, supporting our proposed theoretical mechanism (overconfidence). This study augments existing performance feedback research by showing how decision makers' prior experience can impede problem-solving behavior in organizations. It also contributes to the literature on human capital and organizational learning by documenting an unintended consequence of accumulated human capital on firm adaptive behavior.
The paper provides empirical evidence that strategic complementarities among investors generate fragility in financial markets. Analyzing mutual fund data, we find that, consistent with a theoretical ...model, funds with illiquid assets (where complementarities are stronger) exhibit stronger sensitivity of outflows to bad past performance than funds with liquid assets. We also find that this pattern disappears in funds where the shareholder base is composed mostly of large investors. We present further evidence that these results are not attributable to alternative explanations based on the informativeness of past performance or on clientele effects. We analyze the implications for funds’ performance and policies.
Runs on Money Market Mutual Funds Schmidt, Lawrence; Timmermann, Allan; Wermers, Russ
The American economic review,
09/2016, Letnik:
106, Številka:
9
Journal Article
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We study daily money market mutual fund flows at the individual share class level during September 2008. This fine granularity of data allows new insights into investor and portfolio holding ...characteristics conducive to run risk in cash-like asset pools. We find that cross-sectional flow data observed during the week of the Lehman failure are consistent with key implications of a simple model of coordination with incomplete information and strategic complementarities. Similar conclusions follow from daily models fitted to capture dynamic interactions between investors with differing levels of sophistication within the same money fund, holding constant the underlying portfolio.
Can water mutual funds aid sustainable development? Ibikunle, Gbenga; Martí‐Ballester, Carmen‐Pilar
International journal of finance and economics,
January 2022, 2022-01-00, 20220101, Letnik:
27, Številka:
1
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We conduct the first comparative analysis of the financial performance of global water mutual funds with conventional, ecology and natural resources mutual funds. Based on a unique sample of 88 ...water, 198 ecology, 370 natural resources, and 7,437 conventional mutual funds covering the 2008–2017 period, we contrast the financial performance of these four different fund types. On average, water mutual funds perform comparably to conventional mutual funds and outperform ecology and natural resources funds. The performance dynamics is linked to the state of the economy, such that the outperformance by water mutual funds is not observed when markets are bearish. Overall, fund risk‐adjusted performance is predominantly driven by investor activity, especially with regards to their perception of environmental regulatory risk profiles of funds' constituents.
Corporate bond mutual funds engage in liquidity transformation, raising concerns among academics and policy makers that large redemptions will lead to asset fire sales. We find little evidence, ...however, that bond fund redemptions drive fire sale price pressure after controlling for time-varying issuer-level information that could also affect funds’ trading decisions, using a novel identification strategy that exploits same-issuer bonds held by funds with differing outflows. We attribute our findings, which contrast with those found for equity funds, to funds’ liquidity management strategies. Bond funds maintain significant liquidity cushions and selectively trade liquid assets, allowing them to absorb investor redemption risk without excessively liquidating corporate bonds, even during the 2008 financial crisis.
In this paper, we tackle the issue of evaluating an important class of green investing that integrate classical financial tasks with some environmental issues: the so-called green mutual funds.
In ...order to do this, we first propose three measures of environmental sustainability which may give financial agents information on the greenity of their investments. These alternative indicators could serve as an overall measure of environmental sustainability and overcome the drawback that limits the evaluation of green investments to the measurement of CO2 emissions while often more than one environmental aspects may be considered.
Secondly, we propose some models aimed at evaluating the performance of green mutual funds by taking into account the proposed environmental measures as well as some classical financial indicators. The analysis is carried out in a Data Envelopment Analysis (DEA) framework, since DEA models can consider strategic non-financial objective measures in addition to traditional financial metrics in order to give a more balanced view of socially responsible investments (SRI). The presented models include indicators of environmental sustainability in different ways, either by penalizing a high environmental consumption or by rewarding an environmental saving entailed by a low consumption. The environmental measures and the models proposed are applied to a set of European green funds in the periods 2012–2015 and 2010–2015 to conduct an extensive analysis.
•We propose indicators to measure the environmental saving/consumption of funds.•We evaluate the performance of green mutual funds with a DEA approach.•The DEA models proposed consider both environmental and financial indicators.•An empirical investigation is carried out on European green mutual funds.•A comparison of the performances of green and non-green funds is also conducted.
We document significantly lower inflows in female-managed funds than in male-managed funds. This result is obtained with field data and with data from a laboratory experiment. We find no gender ...differences in performance. Thus, rational statistical discrimination is unlikely to explain the fund flow effect. We conduct an implicit association test and find that subjects with stronger gender bias according to this test invest significantly less in female-managed funds. Our results suggest that gender bias affects investment decisions and thus offer a new potential explanation for the low fraction of women in the mutual fund industry.
The internet appendix is available at
https://doi.org/10.1287/mnsc.2017.2939
.
This paper was accepted by Lauren Cohen, finance.
Using micro-level data on mutual funds from different financial centers investing in equity and bonds, this paper analyzes how investors and managers behave and transmit shocks across countries. The ...paper shows that the volatility of mutual fund investments is quantitatively driven by both the underlying investors and fund managers through (i) injections into/redemptions out of each fund and (ii) managerial changes in country weights and cash. Both investors and managers respond to country returns and crises and adjust their investments substantially, e.g., generating large reallocations during the global financial crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries during bad times and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run pass-through from returns to country weights. Capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks.
► This paper studies how investors and managers react to shocks and crises. ► And the impact on capital flows through international investment allocations. ► Investors inject/redeem money into each fund. ► Managers change country weights and cash. ► Both act pro-cyclically to crises and do not stabilize capital flows.
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