The current study applies a two-state switching regression model to examine the behavior of a hypothetical portfolio of ten socially responsible (SRI) equity mutual funds during the expansion and contraction phases of US business cycles between April 1991 and June 2009, based on the Carhart four-factor model, using monthly data. The model identified a business cycle effect on the performance of SRI equity mutual funds. Fund returns were less volatile during expansion/peaks than during contraction/troughs, as indicated by the standard deviation of returns. During contraction/troughs, fund excess returns were explained by the differential in returns between small and large companies, the difference between the returns on stocks trading at high and low Book-to-Market Value, the market excess return over the risk-free rate, and fund objective. During contraction/troughs, smaller companies offered higher returns than larger companies (ci = 0.26, p = 0.01), undervalued stocks out-performed high growth stocks (hi = 0.39, p i = 0.01, p = 0.02). The hypothetical SRI portfolio was less risky than the market (bi = 0.74, p i = -0.01, p = 0.03). The hypothetical SRI portfolio exhibited similar risk as the market (bi = 0.93, p

In this dissertation, I address a range of topics in the context of mutual fund performance and high frequency trading. The first chapter provides novel evidence on the role of ambiguity aversion in determining the response of mutual fund investors to historical fund performance information. It presents a model of ambiguity averse investors who receive multiple performance-based signals of uncertain precision about manager skill. A key implication of the model is that when investors receive multiple signals of uncertain quality, they place a greater weight on the worst signal. There is strong empirical support for this prediction in the data. Fund flows display significantly higher sensitivity to the worst performance measure even after controlling for fund performance at multiple horizons, performance volatility, flow-performance convexity, and a host of other relevant explanatory variables. This effect is particularly pronounced in the case of retail funds in contrast to institutional funds. The results suggest that fund investor behavior is best characterized as reflecting both Bayesian learning and ambiguity aversion. The second chapter combines data on high frequency trading (HFT) activities of a randomly selected sample of 120 stocks and data on institutional trades, I find that HFT increases the trading costs of traditional institutional investors. An increase of one standard deviation in the intensity of HFT activities increases institutional execution shortfall costs by a third. Further analysis suggests that HFT represents an opportunistic and extra-expensive source of liquidity when demand and supply among institutional investors are imbalanced. Moreover, the impact on institutional trading costs is most pronounced when high frequency (HF) traders engage in directional strategies (e.g., momentum ignition and order anticipation). I perform various analyses to rule out an alternative explanation that HF traders are attracted to stocks that have high trading costs. First, HFT is most prevalent in liquid stocks. Second, the results are robust to controls for stable stock liquidity characteristics and events that might jointly affect HFT and trading costs. Third, an analysis of the HFT behavior around the temporary short selling ban in September 2008 highlights the opportunistic nature of liquidity provision by HF traders. Finally, Granger causality tests show that intensive HFT activity significantly contributes to institutional trading costs, but not vice versa. The third chapter analyzes the implications of the tournament-like competition in the mutual fund industry using a framework that addresses the risk-taking incentives facing fund managers. The theoretical model presented in this chapter suggests that the increase in the \emph{activeness} of the interim loser manager's portfolio is directly related to the magnitude of the performance gap at the interim stage, and to the strength of the investor (cash flow) response to the relative performance rankings of the funds (i.e., the strength of the tournament effect). The empirical evidence based on quarterly Active Share data for a sample of domestic stock funds, is consistent with the key predictions of the model.

Recent studies find that mutual funds exhibit differential and persistent performance which is frequently attributed to superior managerial decision making. We extend the literature by examining the impact of the fund's management structure on performance outcomes. Specifically, we examine directly whether superior outcomes, in terms of risk-adjusted returns, may be explained by behavioral decision making theory that asserts that teams make better decisions than individuals. Empirical results are consistent with the classical decision making theory and the efficient market hypothesis.

I examine mutual fund performance using three different perspectives. I begin with Mutual Fund Holdings Batting Average, in which I analyze mutual fund performance through the creation of a new variable using funds’ stock holdings information. My results show that this new variable, Holdings Batting Average, is related to the future performance of managers. My next chapter, Quarterly Mutual Fund Holdings Information and Window Dressing examines two different approaches of using holdings information. I recommend that fund holdings reported at the beginning of the quarter are more related to actual mutual fund performance than holdings disclosed at the end of the quarter. In my last chapter, Morningstar’s Upside and Downside Capture Ratios¸ I test these two ratios that are being reported by Morningstar. I find that these measures do not predict outperformance, but appear to be related to future fund flows.

The growth of the mutual fund industry and the accompanying competition among intermediaries should lead to progressively lower costs to shareholders, based on economic theory. This dissertation is comprised of three studies which examine shareholder costs among mutual funds to test this theory. In each study the expense ratios of mutual funds are examined, while one study also includes an examination of commission structures. In Essay 1, the effect of participation in a supermarket No Transaction Fee program on a fund’s expense ratio is examined. In addition, the change in characteristics of these participants during a difficult market period is studied. Essay 1 finds that NTF participation leads to higher initial expense ratios but that continued participation depends on the program’s ability to pay for itself. In Essay 2, market segmentation within the fund industry is examined for this same time period. Essay 2 finds increased market segmentation over a five year period and finds evidence of competitive pricing only among certain segments. Retail investors who invest in no-load funds appear to benefit from competitive pricing more than those who pay commissions. There is evidence of cost shifting during this time period, as funds lower expense ratios but increase commissions. In Essay 3, expense ratios of common funds within state-sponsored defined contribution plans are examined. Essay 3 finds evidence of market segmentation among the various states. Plan size may have some effect on the setting of expense ratios, but the effect does not appear to be economically significant. Number of participants has no significant effect on the expense ratio. State population displays some significance, such that funds actually charge more for larger states. Wealth of the state, on the other hand, may result in lower expense ratios. Overall, competitive pricing within the mutual fund industry is limited to certain market segments and may be dependent on the channel of distribution.

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. / Business Administration/Finance

Yes / Extant literature shows the positive impact of institutional development on investor rationality and market efficiency. The authors extend this evidence by investigating the performance-flow relationship in the Chinese mutual fund market before and after the enforcement of the revised Law of the People’s Republic of China on Securities Investment Fund. Empirical evidence reveals that Chinese investors irrationally chase past star performers before institutional reform, but gradually become rational and less obsessed with star-chasing behaviors after reform. Moving one percentile upward in the relative performance among the star funds is associated with money inflows by 0.532% after reform, much lower than 1.433% before reform. The findings confirm the positive influence of institutional development on investor rationality and market efficiency. The successful experience can be borrowed by other emerging markets with less developed institutions. / National Social Science Foundation of China [grant number 15AJY019].

Made available in DSpace on 2010-04-20T20:51:42Z (GMT). No. of bitstreams: 3 154941.pdf.jpg: 12079 bytes, checksum: 809428fce6feb0072e770a5b74f32903 (MD5) 154941.pdf: 545730 bytes, checksum: ff5c0f2f9eb9820b7a86ba64f3d0f907 (MD5) 154941.pdf.txt: 108893 bytes, checksum: 77009802f4e69002e5a5064d61049c82 (MD5) Previous issue date: 2006-02-13T00:00:00Z / O presente trabalho estuda o efeito Smart Money, inicialmente identificado por GRUBER (1996) e ZHENG (1999), na indústria de fundos brasileira no período de 2001 a 2005. Buscou-se identificar se os fundos que apresentaram maior captação líquida em seguida performam melhor do que os fundos de menor captação líquida. O efeito Smart Money foi identificado nos fundos de ações mesmo após ter sido controlado pelo efeito momentum. Nos fundos multimercados com renda variável e nos fundos de renda fixa não foi possível identificar tal fenômeno. / This work studies the Smart Money Effect, initially identified by GRUBER (1996) and ZHENG (1999), in the brazilian mutual fund industry in the period of 2001-2005. The objective was to verify if the funds with the highest net cash flows had a better performance in the following period than the funds with the lowest net cash flows. The Smart Money Effect was identified in stock funds, even after controlling by the stock return momentum phenomenon. In mixed funds and in fixed income funds it was not possible to identify such effect.

本研究探討2001年1月至2016年12月內所有以台股市場為標的之開放式股票型基金，透過多元迴歸模型與交易策略法深入的了解資金流量與過去和未來一期報酬率之間的關聯性，並從中探討台灣投資人的行為偏好。 透過多元迴歸模型與交易策略法可以發現代表台灣投資人投資偏好的資金淨流量變動率普遍有追逐過去績效表現優異之基金的傾向，接著探討資金淨流量變動率與未來一期報酬率的關聯後發現，台灣共同基金市場上當期資金淨流量變動率越高的基金，普遍在未來短期內所獲得的報酬率有較低的現象，然而隨著未來報酬期間的拉長，此現象便逐漸消失，最主要的解釋原因為台灣共同基金投資人普遍有追逐過去績效表現優異之基金的傾向，使過去績效表現較好的基金容易湧入過多的申購資金，而這些基金雖然在過去一期該基金經理團隊可以憑藉著自己所擅長的產業與個股經驗，挑選到具有成長潛力的投資標的，但隨著過去一期的優異表現，這些基金的投資組合持股價格已經來到相對高點，難以持續擁有良好的報酬表現，加上基金經理團隊手上仍握有許多等待投資的現金，最終可能迫使基金經理團隊必須開始涉入自己不熟悉的產業與個股，增加錯誤投資的機會而使績效表現變差，然而長期而言，該基金經理團隊仍可以憑藉著自己的專業投資能力，重新尋找到優良投資標的，消化過去湧入的投資資金，改善過去短期績效表現不佳的狀況。 / This study explored all open-ended equity funds targeting Taiwan’s stock market from January 2001 to December 2016. Through multiple regression model and trading strategy method, we got an in-depth understanding of the relationship between fund flows and both past and future returns, and the characteristics of the trading behavior of Taiwan’s investors were further investigated. By using multiple regression model and trading strategy method we found evidence that Taiwan’s investors have the tendency to chase mutual funds which had superior performance in the last period. Following this issue, we also found that funds with higher fund inflow generally had lower return in the short term time horizons, but the phenomenon would gradually disappear when the time horizons were extended. The main explanation of this phenomenon is that Taiwan’s investors generally have the tendency to buy mutual funds which gave superior return in the last period, so that funds with better performance in the past are prone to attract subscription. Although in the last period, these funds’ management team could rely on their own industrial and individual stock-picking experience, selecting those stocks with high growth potential. However, with an outstanding performance in previous period, stock prices in those fund’s portfolio had come to a relatively high point, so it’s hard to maintain good performance. With a vast sum of fund inflow, the management team may also be forced to invest in the industries or companies that they’re unfamiliar with, causing the possibility of wrong investment. However, when the time horizons were extended, the management team could digest the inflow of investment funds by rediscovering good investment targets and improve their fund performance.

The master thesis deals with collective investment possibilities in Czech Republic designed for small investors with focus on instruments carrying very low risk. The goal is to assess these possibilities and their mutual comparison according to their return and risks. Special attention is devoted to protected mutual funds, as popular instrument of risk-averse investors.