An investor can generate higher returns on the German stock market if he is using an active portfolio management strategy rather than its passive counterpart. This is possible because the market is not efficient and the DAX, namely the market portfolio, can be outperformed in regard to the average annual return and its variance. Therefore, the CAPM does not hold for the German stock market. The investor has to use the 10 weeks old changes of the ifo business climate index to forecast the DAX movement in the upcoming month. Even though this forecasting method only gave the correct trading signal for 56% of the months between 1991 and 2011, it outperformed the Buy and Hold strategy by 324 basis points. The main reason for this is that the business index was able to warn the investor of months in which the DAX lost over 10% of its value. The superiority of the active strategy was still valid when transaction costs were taken into account and was even stronger when call money was the alternative investment to the DAX rather than cash.

[pt] Esta dissertação mostra o processo de um gerenciamento ativo de carteiras de sucesso. Basicamente, existem duas etapas neste processo: achar uma informação superior (melhor do que a de consenso de mercado, alto valor de IR e valor positivo de IC) e implementa-la de forma eficiente em carteiras. Durante o período de 1997 á 2000, o momentum foi verificado como uma informação superior. Historicamente, as ações que tem a característica momentum são ações que superaram o mercado nos últimos 12 meses e continuam a manter esta performance nos próximos meses. Depois, utilizando a análise de informação foi possível verificar que esta informação superior adicionava valor ao processo de investimento. Após identificar a informação superior, uma fórmula básica de previsão desenvolvida por Grinold (1994) foi sugerida para transformar a informação bruta em previsão de retorno. Os parâmetros desta formula são ajustados para uma escala correspondente à informação contida na previsão bruta. Finalmente, com a previsão de retorno três técnicas de construção de carteiras (estratificação, janelas e programação quadrática) foram utilizadas. Depois, para cada técnica de construção a performance foi medida nos períodos a fim de identificar qual dos métodos foi mais consistente ao longo do tempo. / [en] This dissertation shows the process of successful active portfolio management. Basically, it has two key elements: finding superior information (better than consensus, high information ratio and positive information coefficient) and efficiently building portfolios based on that information. During the period from 1997 to 2000, the momentum was the superior information. Historically, momentum represents stocks outperforming the market over 12 months and have continue their performance into the next several months. Then using information analysis, it was possible to verify that this superior information add value to the investment process. After identifying the superior information, a basic forecast formula developed by Grinold (1994) was suggest to transform raw information into refined forecast. The outputs of this formula are in the form and units of exceptional return adjusted for the information content of the raw forecast. Finally, with the refined information three techniques for portfolio construction (stratification, screen and quadratic programming) were applied based on this information. Next, for each technique the portfolio performance was track over the period in order to find a consistent technique over time. / [es] Esta disertación muestra el proceso de gerenciamiento activo de carteras de suceso. Básicamente, existen dos etapas en este proceso: buscar una información superior (mejor que la de consenso de mercado, alto valor de IR y valor positivo de IC) e implementarla de forma eficiente en carteras. Durante el período de 1997 al 2000, el momentum fue verificado como una información superior. Históricamente, las acciones que tiene la característica momentum son acciones que superaran el mercado en los últimos 12 meses y continúan a mantener ese comportamiento en los próximos meses. Utilizando análisis de información, fue posible verificar que la información extra adicionava valor al proceso de inversión. Después de identificar la información superior, se sugiere una fórmula básica de previsión desarrollada por Grinold (1994) para transformar la información bruta en previsión de retorno. Los parámetros de esta fórmula son ajustados para una escala correspondiente a la información contenida en la previsión bruta. Finalmente, con la previsión de retorno, se utilizaron tres técnicas de construcción de carteras (estratificación, ventanas y programación cuadrática). Después, para cada técnica de construcción, se mide la performance en los períodos con el objetivo de identificar cual de los métodos fue más consistente a lo largo del tiempo.

Abstract This doctoral thesis aims to contribute to the literature on hedge fund performance and risk by conducting four interrelated essays. The first two essays measure and predict hedge fund performance using novel methodologies based on recent development in portfolio choice techniques. This new way to evaluate fund performance relies on economic theory and robust econometric principles. The first essay exploits hedge fund characteristics in order to pick right funds into a portfolio, whereas the second essay predicts hedge fund performance using conditional information that is contained in macroeconomic variables. The empirical analysis shows that the proposed conditional real-time portfolio strategies deliver significant outperformance over the unconditional benchmark strategy which does not utilize conditional information. The third essay investigates whether a particular hedge fund with specific fund characteristics contributes to systemic risk and how hedge funds with a high systemic risk contribution perform during the times of financial distress. The findings suggest that the fund’s capital structure is related to its systemic risk contribution, and, furthermore, that hedge funds with a high systemic risk contribution tend to deliver extremely poor performance during the times of financial distress. The fourth essay examines the impact of share restrictions on hedge fund performance and risk-taking. The essay finds that hedge funds with a lockup period tend to take excess risk that is not compensated when performance is measured as a unit of risk taken by the hedge fund. In addition, the length of notice periods increases along with the illiquidity level of fund investments. Finally, hedge funds with a long notice period seem to be able to earn an illiquidity premium.

Bakgrund: Det rådande pensionssystemet i Sverige består av sex så kallade AP-fonder. Genom åren har pensionssystemet flertalet gånger kritiserats för dess låga avkastning. Problem: Vår huvudfråga är att jämföra AP-fondernas risk och avkastning med aktiemarknaden som helhet, detta ska ske med hjälp av två jämförelseindex: MSCI World och SIXRX. Syfte: Syftet med uppsatsen är att jämföra de fyra första AP-fondernas risk och avkastning med aktiemarknaden som helhet under åren 2002-2010. Metod: Vi har använt oss av en kvantitativ metod, genom att samla in information från AP-fondernas årsredovisningar och hemsidor. Vi har samlat in historisk data, som vi sedan har bearbetat och analyserat. Slutsats: De studerade AP-fonderna har presterat sämre än aktiemarknaden. / Background: The current pension system in Sweden consists of six so called AP-funds. Throughout the years the pension system has been criticized for its low return. Problem: We will compare the pension funds’ risk and return with the rest of the stock market as a whole. This will be done by the aid of two comparison registers: MSCI World and SIXRX. Purpose: Our purpose with the essay is to compare the pension funds in the Swedish pension system, their risk and return, with the share market as a whole. Method: We have used a quantitative method, by gathering information from the annual reports and relevant websites. We have also gathered historical data, which has been processed and analyzed. Conclusion: The studied pension funds have achieved lower results than the stock market market.

The following dissertation contains two unique empirical studies that contribute to the overall literature in the field of Financial Economics in the areas of mutual fund investing and financial intermediation and regulation. The first Chapter, entitled “The Impact of Macroeconomic Stress on the U.S. Financial Sector”, examines the relative impact of macroeconomic stress on financial and non-financial U.S. firms. Empirical results show that macroeconomic shocks appear to have a larger impact on financial firms. Additionally, the sensitivity of financial firms to macroeconomic events can be traced to the influence of non-depository institutions, or “shadow banks”, like finance and investment companies, which are less regulated than depository institutions. The results coincide with several trends in the financial sector including increased competition, complexity and interconnectedness and highlight the need for governance mechanisms that account for the risks associated with these factors. The second chapter, entitled “Partial Adjustment Towards Equilibrium Mutual Fund Allocations: Evidence from U.S.-based Equity Mutual Funds”, examines the relative efficiency of equity mutual funds in terms of speed of portfolio adjustment by applying a partial adjustment model. Empirical results show that mutual fund managers are able and willing to quickly adjust their portfolios when results have been sub-optimal, implying that the cost of persistent poor performance is perceived as being high. Managers can offset about 106 percent of the deviation within one period. Additionally, results show that funds that typically engage in the costly production of specialized information, like emerging market and sector funds have more efficient speeds of portfolio adjustment than more passive funds, like market index funds. The results imply that actively managed funds may have efficiency advantages that have been previously ignored in the empirical literature.

Baigiamajame magistro darbe yra nagrinėjama aktyvaus tarptautiniu mastu diversifikuoto portfelio sudarymo ir valdymo problematika. Techninė pažanga ir investicinių priemonių įvairovė leidžia investuotojams investuoti į įvairias pasaulio rinkas kuriant tarptautinius ar globalius investicijų portfelius. Tai suteikia investuotojams galimybę kovoti su tokiais išsivysčiusių kapitalo rinkų iššūkiais kaip šalies sisteminės rizikos padidėjimas dėl įvairių verslo šakų tarpusavio integracijos, nepakankamais kai kurių rinkų augimo tempais, tačiau iškelia ir naujų iššūkių. Pagrindinis jų yra efektyvaus portfelio sudarymo menko informuotumo, didelio neapibrėžtumo ir rinkų nepastovumo sąlygomis iššūkis. Šiame darbe yra nuosekliai nagrinėjami investicijų portfelių sudarymo metodai ir modeliai įvertinant jų taikymo galimybes darbe analizuojamai problemai spręsti. Remiantis atlikta analize, parenkamas modelis geriausiai tinkantis tolesnei plėtotei, vertinami pagrindiniai mokslininkų siūlomi jo papildymai ir taikymo interpretacijos nuosekliai pereinant prie pirmos tikslo dalies įgyvendinimo – aktyviam tarptautiniu mastu diversifikuoto investicijų portfelio valdymui skirto teorinio – hipotetinio modelio pasiūlymo. Atlikus tarptautinės diversifikacijos privalumų ir trūkumų analizę, pagrindžiamas jos taikymo būtinumas ir nauda. Atlikta pagrindinių tarptautinės diversifikacijos vykdymo būdų apžvalga leidžia parinkti, autoriaus nuomone, geriausią šiuo metu Lietuvos investuotojams prieinamą –... [toliau žr. visą tekstą] / The master thesis examines problems of the active internationally diversified investment portfolio selection and management. Technical progress and variety of investment objects (financial assets) allow investors to invest in different world markets developing international or global investment portfolios. It gives opportunities to deal with such challenges of developed capital markets as high systematic risk and limited growth of some markets, but as a result investor must accept some new challenges. The most important of them is an efficient portfolio selection in terms of low information level, high uncertainty and market volatility level. The models of investment portfolio selection are analyzed evaluating opportunities to use them solving in this thesis examined problem. On the basis of the conducted research a model which is most suitable for further development is chosen, the main supplementary supplements and interpretations of applications are analyzed, leading to the implementation of the first part of the set goal which is the suggestion of theoretical–hypothetical model for active management of an internationally diversified investment portfolio. The careful consideration of the advantages and disadvantages of international diversification proves the necessity and benefits of its application. Main methods’ of international diversification analysis gives opportunity for the thesis author to chose the best investment’s method possible for Lithuanian investors – the... [to full text]

Submitted by Pedro Luiz Albertin Bono Milan (pedrolalbertin@gmail.com) on 2017-02-22T20:43:42Z No. of bitstreams: 1 Gestao Ativa de Carteiras de Renda Fixa.pdf: 1715135 bytes, checksum: ad7e9b05127e972e34408c5fbe927dbd (MD5) / Approved for entry into archive by Pamela Beltran Tonsa (pamela.tonsa@fgv.br) on 2017-02-23T14:22:59Z (GMT) No. of bitstreams: 1 Gestao Ativa de Carteiras de Renda Fixa.pdf: 1715135 bytes, checksum: ad7e9b05127e972e34408c5fbe927dbd (MD5) / Made available in DSpace on 2017-02-23T14:35:42Z (GMT). No. of bitstreams: 1 Gestao Ativa de Carteiras de Renda Fixa.pdf: 1715135 bytes, checksum: ad7e9b05127e972e34408c5fbe927dbd (MD5) Previous issue date: 2017-02-14 / This study examines the contribution of active portfolio management in fixed income investments in Brazil. Active portfolio management is critical to the investment return, as it seeks to achieve rates of return above those of a market portfolio. The Efficient Market Hypothesis, which states that an informational dynamics prevents managers from anticipating price movements and taking up winning positions in the market, surrounds the activities of portfolio management. With regard to the controversy about the effectiveness of active management, the complete understanding about the topic has not yet been established. The contributions of the study is based on the decomposition of excess returns of the portfolios into managers' choices about duration, allocation and selection, which serves as support to apply a metric of dispersion in managers' expectations in fixed income portfolios. Through the expectations, it was possible to observe a positive effect of the managers in the performance of the funds, supporting the active management of the fixed income portfolios in the Brazilian market. / Este estudo examina a contribuição da gestão ativa para a rentabilidade das carteiras de investimentos de renda fixa no Brasil. A atuação do gestor é fundamental para o desempenho das carteiras de investimentos com gestão ativa, uma vez que ele busca acessar taxas de retorno acima das taxas de uma carteira de mercado. Permeando o exercício da gestão ativa de carteiras está a Hipótese de Eficiência de Mercado, que aponta para uma dinâmica informacional que impede os gestores de antever movimentos e assumir posições vencedoras no mercado. A discussão na literatura mostra que há controvérsia sobre os benefícios da gestão ativa e que a compreensão completa sobre o tema ainda não foi alcançada. O estudo parte da decomposição dos excessos de retornos das carteiras, pelas escolhas dos gestores sobre a duration, a alocação e a seleção individual dos ativos, permitindo a adaptação de uma métrica de dispersão de expectativas dos gestores em carteiras de renda fixa. Por meio das expectativas, foi possível observar um efeito positivo dos gestores no desempenho dos fundos, embasando a hipótese da contribuição da gestão ativa de carteiras de renda fixa no mercado brasileiro.

Risk and tracking error budgeting was originally adopted by large institutional investors, including pension funds, plan sponsors, foundations, and endowments. More recently, risk and tracking error budgeting have gained popularity among financial advisors, multi-managers, fund of funds managers, high net worth individuals as well as retail investors. These techniques contribute to the portfolio optimisation process by limiting the extent to which a portfolio can deviate from its benchmark with regards to risk and tracking error. This is an ambitious paper that attempts to determine the optimal strategy to practically implement risk and tracking error budgeting as a portfolio optimisation technique in South Africa. This study attempts to bridge the gap between active, passive, and smart-beta investment management styles by introducing a low-cost portfolio construction technique, for core-satellite portfolio management, which contributes to the risk and tracking error budgeting process. Core-satellite portfolios are designed to expose the portfolio to a low-cost primary “core” consisting of passive and enhanced index funds, thus systematic risk “beta”, limiting the tracking error of the portfolio. The secondary “satellite” component is allocated to active and smart-beta managers to exploit expected excess return “alpha”. The primary aim of this research is to construct a rule-based product range of core-satellite portfolios called “replica portfolios”. The product range builds on the foundation of the Association for Savings & Investments South Africa (ASISA) framework. The study identifies three “target portfolios” from ASISA's framework, namely (1) High Risk: SA General Equity, (2) Medium Risk: SA Multi-Asset High Equity and (3) Low Risk: SA Multi-Asset Low Equity. Through this framework, active managers from each category are shortlisted using a Sharpe and Information Ratio filter. A secondary filtering technique, namely Returns Based Style Analysis (RBSA) is used to determine the style, R-squared and alpha-generating ability of active managers versus the passive asset classes and style indices they seek to replicate. Applying Euler's theorem for homogenous functions, we decompose the risk of the coresatellite portfolio into the risk contributed by each of its components. The primary mandate of the core-satellite portfolios in the product range is to allocate risk and tracking error efficiently across several investment management styles and asset classes in order to maximise returns while remaining within the specified risk parameters. iii The results highlighted that active managers, after fees, predominantly failed to outperform their benchmarks and passive building blocks, as identified through RBSA over the sample period (October 2009 – September 2019). However, only a small number of active managers generated superior risk-adjusted returns and were included in the core-satellite range of products. This study recommends to investors that they exploit the “hot-hands effect” by investing in specialised, benchmark agnostic active managers who consistently produce superior risk-adjusted returns. By blending active, passive and smart-beta strategies, investors are exposed to less total risk, less risk per holding and a lower tracking error. The three coresatellite portfolios developed in this study generated absolute and risk-adjusted returns that are more significant than their active and passive counterparts. Fee arbitrage was derived through the range of core-satellite products, resulting in tangible alpha over the sample period. The study encourages investors to use smart-beta strategies alongside active and passive funds since it improves Sharpe and Information ratios while enhancing the original portfolio's characteristics.

Bakgrund: Värdestrategier har historiskt sett ofta genererat överavkastning relativt index. Huruvida en värdestrategi lyckas eller ej återspeglas i dess förmåga att identifiera och utnyttja felprissättningar på aktiemarknaden. Å andra sidan menar den effektiva marknadshypotesen att investeringsstrategier inte kan överavkasta marknaden via strategin i sig, utan att eventuell överavkastning beror på slumpen. Av dessa anledningar blir det intressant att analysera huruvida Greenblatts (2010) The Magic Formula kan generera överavkastning gentemot marknaden. Dessutom blir det intressant att testa om en modifierad strategi har en högre sannolikhet att lyckas med detta.  Syfte: Syftet med denna studie är att analysera huruvida The Magic Formula-strategin, och en modifierad The Magic Formula-strategi kan överavkasta den svenska aktiemarknaden över tid.  Metod: Studien har en kvantitativ strategi med en deduktiv ansats och en longitudinell design. Historiska aktiekurser har hämtats för att testa strategierna, där två fiktiva portföljer har skapats. Resultatet av dessa portföljers prestation har sedan analyserats samt testats statistiskt.  Slutsats: Resultatet visade att The Magic Formula mellan 2011–2022 inte lyckades överavkasta index. En modifierad variant av The Magic Formula lyckades dock överavkasta index avsevärt. Skillnaderna i medelavkastning gick dock inte att säkerställa statistiskt, vilket betyder att den genererade över- och underavkastningen mycket möjligt kan ha varit slumpmässig.  Nyckelord: The Magic Formula, EMH, Aktiv portföljförvaltning, Värdeinvestering, Overconfidence, Riskuppfattning, Flockbeteende / Background: Value investing has historically often generated excess returns relative to index. Whether a value strategy succeeds is reflected in its ability to identify and exploit mispricings in the stock market. On the other hand, the effective market hypothesis indicates that investment strategies cannot overperform the market via the strategy by itself, but that any excess return is random. For these reasons, it would be interesting to analyze whether Greenblatt's (2010) The Magic Formula can generate excess returns relative to the market. In addition, it would be interesting to test whether a modified strategy has a higher probability of succeeding.  Purpose: The purpose of this study is to analyze whether The Magic Formula strategy, and a modified The Magic Formula strategy can outperform the Swedish stock market over time.  Method: The study has a quantitative strategy with a deductive approach and a longitudinal design. Historical stock quotes have been obtained to test the strategies, where two fictitious portfolios have been created. The result of these portfolios' performance has then been analyzed and statistically tested.  Conclusion: The results showed that The Magic Formula between 2011–2022 failed in overperforming the market. However, a modified version of The Magic Formula managed to outperform the index considerably. Though, the differences in average returns could not be ensured statistically, which means that the generated over- and underperformance may very well have been random.  Keywords: The Magic Formula, EMH, Active portfolio management, Value investing, Overconfidence, Risk perception, Herd behaviour

Abstract This doctoral thesis aims to contribute to the literature on hedge fund performance in three interrelated essays. The first essay uses a novel database aggregation and a comprehensive analysis of differences between the main commercial databases exploring the effects of different databases on previously documented stylized facts, including the (1) average risk-adjusted performance; (2) the persistence of that performance; (3) and the cross-sectional relation between fund-characteristics and risk-adjusted returns. The main finding is that several previously documented stylized facts about hedge fund performance are sensitive to database selection and associated biases. Differences in conclusions stem from database differences in defunct coverage, survivorship and backfill biases, and the completeness of assets under management information. The second essay examines the effect of frictions on the returns that investors can earn from investing in hedge funds. The study focuses on size and redemption restrictions that are key investment constraints in practice. The size–performance relationship is positive (negative) when past (future) performance is used. The negative size–performance relationship is consistent with theories suggesting a decreasing returns-to-scale in the active management industry. Differences in attrition rates and risk taking as well as the relative importance of management fees and capacity constraints between small and large funds are consistent with an equilibrium in which investors and hedge funds optimally respond to incentives subject to constraints. Performance persistence decreases along with the fund size but concentrated hypothetical Fund-of-Fund portfolios outperform. The third essay examines hedge funds' ability to enhance their performance through leverage. The essay explicitly shows that leverage enhances risk-adjusted performance and risk of investment programs. The main finding is that the average high-leverage fund class underperforms its low-leverage counterpart of the same investment program after their returns are appropriately adjusted to the same level. The finding is consistent with the predictions of leverage aversion theories suggesting that leverage constraints and costs of leverage have a negative impact on risk-adjusted returns. / Tiivistelmä Tämä väitöskirja sisältää kolme artikkelia, joissa tutkitaan hedge-rahastojen menestystä. Ensimmäisessä artikkelissa rakennetaan yhdistelmäaineisto päätietokannoista ja tutkitaan tietokantojen eroavaisuuksien vaikutuksia keskeisiin kirjallisuudessa esitettyihin tutkimustuloksiin hedge-rahastojen riskikorjatun tuoton tasosta ja tuoton pysyvyydestä sekä rahastokohtaisten ominaispiirteiden ja riskikorjatun tuoton välisestä relaatiosta. Tutkimuksessa havaitaan että tutkimusaineiston valinta vaikuttaa merkittävästi aikaisemmassa kirjallisuudessa esitettyihin tutkimustuloksiin. Merkittävimmät erot tutkimustuloksissa eri tietokantojen välillä selittyvät tietokantojen eroavaisuuksissa toimintansa lopettaneiden rahastojen kattavuudessa ja näin ollen eloonjäämis- ja backfilling-harhan tasossa sekä rahastojen markkina-arvoa kuvaavan aineiston määrässä ja laadussa. Toinen artikkeli tarkastelee rajoitteita, joita sijoittajat kohtaavat sijoittaessaan hedge-rahastoihin. Päähuomio on koko- ja lunastusrajoitteissa, jotka ovat käytännössä merkittävimmät rajoitteet hedge-rahastosijoittajalle. Rahastojen markkina-arvon ja riskikorjatun tuoton välillä on negatiivinen (positiivinen) relaatio kun tarkastellaan rahastojen tulevaa (historiallista) menestystä. Tulokset tukevat teoreettisia esityksiä, joiden mukaan rahastojen kasvu heijastuu menestykseen negatiivisesti. Markkina-arvoltaan pienissä rahastoissa on huomattavasti enemmän riskiä kuin markkina-arvoltaan suurissa rahastoissa. Korkeampi riski pienissä rahastoissa lisää tuotto-perusteisten palkkioiden merkitystä palkkiorakenteissa kun taas suurilla rahastoilla on kannustimet maksimoida markkina-arvon mukaan määriteltyjä hallinnointipalkkioita. Tulokset tukevat talousteoriaa, jonka mukaan riski ja tuoton taso pienevät rahastojen markkina-arvojen kasvaessa. Tuoton pysyvyys pienenee rahaston markkina-arvon kasvaessa. Kuitenkin hypoteettiset rahastot, jotka on hajautettu aikaisempiin menestyjiin keskeiset sijoittajien rajoitteet huomioiden, menestyvät riskikorjatusti. Kolmannessa artikkelissa tutkitaan hedge-rahastojen kykyä lisätä riskikorjatun tuoton tasoa velkavivun avulla. Velkavivun käyttö kasvattaa sijoitusstrategian tuoton ja riskin tasoa alhaisemman velkatason osuuslajeihin verrattuna. Päätuloksena havaitaan, että tyypillinen sijoitusstrategian korkean velkatason osuuslajin tuoton taso on merkittävästi alhaisempi matalan velkatason osuuslajiin nähden kun molempien osuuslajien tuottoaikasarjat ovat asetettu samalle tasolle. Talousteoriaa ennustaa, että sijoittajien rajoitteet käyttää velkavipua ja velkavivun käyttöön liittyvät kustannukset heijastuvat salkun tuoton tasoon negatiivisesti.