This paper examines institutional price pressure in equity markets by studying mutual fund transactions caused by capital flows from 1980 to 2004. Funds experiencing large outflows tend to decrease ...existing positions, which creates price pressure in the securities held in common by distressed funds. Similarly, the tendency among funds experiencing large inflows to expand existing positions creates positive price pressure in overlapping holdings. Investors who trade against constrained mutual funds earn significant returns for providing liquidity. In addition, future flow-driven transactions are predictable, creating an incentive to front-run the anticipated forced trades by funds experiencing extreme capital flows.
In this article, we shed light on the debate about the financial performance of socially responsible investment (SRI) mutual funds by separately analyzing the contributions of before-fee performance ...and fees to SRI funds' performance, and by investigating the role played by fund management companies in the determination of those variables. We apply the matching estimator methodology to obtain our results and find that in the period 1997–2005, US SRI funds had better beforeand after-fee performance than conventional funds with similar characteristics. The differences, however, are driven exclusively by SRI funds run by management companies specialized in SRI. While these funds significantly outperform similar conventional funds, funds run by companies not specialized in SRI underperform their matched conventional funds. We find no significant differences in fees between SRI and conventional funds except in one case: SRI funds are cheaper than conventional funds run by the same management company.
Proponents of IFRS argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. We test this assertion ...by examining changes in foreign mutual fund investment in firms following mandatory IFRS adoption in the European Union in 2005. We measure improved comparability as a credible increase in uniformity, defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion, we find that foreign mutual fund ownership increases when mandatory IFRS adoption leads to improved comparability.
► Foreign mutual fund ownership increases in the EU after mandatory adoption of IFRS. ► The increase in mutual fund ownership is larger when IFRS adoption improves comparability. ► Both implementation credibility and increased uniformity are important factors leading to improved comparability. ► The effects of improved comparability do not increase domestic mutual fund ownership. ► The effects of improved comparability on foreign fund ownership are primarily driven by foreign global funds, as opposed to foreign regional, country, and other funds.
Economic growth and development around the world are leading to increasing worldwide demand for energy, whose production still mainly comes from fossil fuels generating large amounts of greenhouse ...gas emissions, which contribute to global warming and climate change. To mitigate climate change, the European Union implemented an energy policy strategy that encourages firms to implement sustainable energy systems. This could generate investment opportunities in energy efficiency and renewable energy projects around the world for European mutual funds. Therefore, the main aim of this paper is to analyze the financial performance of energy and renewable energy mutual funds using conditional and unconditional models. To this end, we have a sample of 4496 mutual funds commercialized in Europe in the period 2007–2018. Our results indicate that renewable energy mutual funds perform similarly to the market using conditional models. However, they underperform their conventional peers using a specialized market benchmark, reaching similar performance to black energy funds. While the total expense ratio negatively affects renewable energy financial performance, other fund characteristics, such as size or Socially Responsible Investing (SRI) certification, do not affect it.
•This study analyzes the financial performance of energy and renewable energy funds.•This study implements conditional and unconditional models.•Renewable energy funds perform similarly to the market using conditional models.•Renewable energy funds underperform their conventional peers in unconditional models.•The total expense ratio negatively affects renewable energy financial performance.
The flow-performance relationship around the world Ferreira, Miguel A.; Keswani, Aneel; Miguel, Antonio F. ...
Journal of banking & finance,
June 2012, 2012-6-00, 20120601, Letnik:
36, Številka:
6
Journal Article
Recenzirano
Odprti dostop
► We study how mutual fund flows depend on past performance across 28 countries. ► We find marked differences in the flow-performance relationship across countries. ► Investors sell losers more and ...buy winners less in more developed countries. ► Investors’ sophistication and participation costs explain differences in convexity. ► Country-level convexity is positively associated with risk taking by fund managers.
We use a new dataset to study how mutual fund flows depend on past performance across 28 countries. We show that there are marked differences in the flow-performance relationship across countries, suggesting that US findings concerning its shape do not apply universally. We find that mutual fund investors sell losers more and buy winners less in more developed countries. This is because investors in more developed countries are more sophisticated and face lower costs of participating in the mutual fund industry. Higher country-level convexity is positively associated with higher levels of risk taking by fund managers.
We find evidence of widespread stale pricing in bond mutual funds and the resulting risks of dilution and fragility. A principal driver of this phenomenon is the high illiquidity of funds’ holdings, ...which makes accurate pricing difficult and provides funds with greater discretion over valuation. Consequently, net asset values (NAVs) are extremely stale and fund returns are predictable over several days and weeks, particularly during market crises. Opportunistic traders withdraw capital from overvalued funds, exacerbating the risk of fund runs, while buy-and-hold investors face annual dilution of around $1.2 billion. Our results highlight adverse consequences of insufficient fair valuation practices that remain pervasive even after corrective regulations that followed the 2003 market-timing scandal.
Why mutual funds “underperform” Glode, Vincent
Journal of financial economics,
03/2011, Letnik:
99, Številka:
3
Journal Article
Recenzirano
Odprti dostop
I propose a parsimonious model that reproduces the negative risk-adjusted performance of actively managed equity mutual funds. In the model, a fund manager can generate state-dependent active returns ...at a disutility. Negative expected performance and mutual fund investing simultaneously arise in equilibrium because the active return the fund manager generates covaries positively with a component of the pricing kernel that the performance measure omits, consistent with recent empirical evidence. Using data on U.S. funds, I also document new empirical evidence consistent with the model's cross-sectional implications.
Our paper investigates spillover effects across different business segments of publicly traded financial conglomerates. We find that the investment decisions of mutual fund shareholders do not depend ...only on the prior performance of the mutual funds; they also depend on the prior performance of the funds’ management companies. Flows into equity and bond mutual funds increase with the prior stock price performance of the funds’ management companies after controlling for fund performance and other fund characteristics. The sensitivity of flows to the management company’s performance is not justified by the subsequent performance of the affiliated funds. The results indicate that the reputation of a company’s brand has a significant impact on the behavior of its customers.
This paper was accepted by Wei Jiang, finance
.
This paper demonstrates that the ability of fund managers to create value depends on market liquidity conditions, which in turn introduces a liquidity risk exposure (beta) for skilled managers. We ...document an annual liquidity beta performance spread of 4% in the cross section of mutual funds over the period 1983–2014. Liquidity risk premia explain an insubstantial fraction of this spread; instead, the spread can be attributed to the differential ability of high liquidity beta funds to outperform across high and low market liquidity states, due to a differential rate of either mispricing correction or intensity of informed trading. Tests based on mispricing, proxied by a comprehensive set of 68 anomalies, and tick-by-tick trades, from a large proprietary institutional trading data set, corroborate the contribution of these channels. The results highlight the interaction between informed investors, mispricing, and liquidity beta.
The Internet appendix is available at
https://doi.org/10.1287/mnsc.2017.2851
.
This paper was accepted by Neng Wang, finance.
The promotion of carbon-neutral investments is among the primary constituents of developing a carbon-neutral economy. This is even more important for emerging economies that have constrained ...financial markets. In this paper, using monthly data between 2011 and 2019, we study 6519 actively managed mutual funds in BRICS after sorting them into black, brown, and green categories based on their investment holdings. Our comparative performance shows that green funds outperform their counterparts for the entire sample and within-country assessment. We also document the volatility and market timing ability of green funds, mainly absent in high emission funds. The results remained robust for various definitions of performance. Our findings also indicate Chinese green funds perform better than those of other countries. This is attributed to the multiple ecologically friendly economic policies that China has adopted over the years. Based on the results, we propose various interventions that could foster the adaptability of a carbon-neutral investment landscape.
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•We assess the performance of BRIC funds after segregating on carbon profiles.•The Green funds show better risk-adjusted performance than brown & black funds.•The low carbon funds exhibit market timing ability during the sample period.•We report strong evidence of volatility timing for green equity funds.•The results are encouraging for promoting a zero-carbon investment paradigm.
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