mutual fund performance an analysis of quarterly portfolio holdings this article employs the 1975 84 quarterly holdings of a sample of mutual funds to construct an estimate of their gross returns this sample which is not subject to survivorship bias is used in conjunction with a sample that contains the actual net returns of the mutual funds in addition to allowing the authors to estimate the bias in measured performance that is due to the survival requirement and to estimate total transaction costs the sample is used to test for the existence of abnormal performance the tests indicate that the risk adjusted gross returns of some funds were significantly positive copyright 1989 by the university of chicago

predictable and profitable price patterns evidence from us interest rates abstract this paper detects a predictable response of short term eurodollar interest rate futures to us employment data during 1988 1993 a simulation with a trading rule derived from this predictable response generates systematic profits thus violating the efficient markets hypothesis

strategic price complexity in retail financial markets abstract there is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets there is significant price dispersion even when products are homogeneous also despite the large number of firms in the market prices remain above marginal cost and may even rise as more firms enter in a non cooperative oligopoly pricing model i show that these anomalies arise when firms add complexity to their price structures complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market in the model as competition increases firms tend to add more complexity to their prices as a best response rather than make their disclosures more transparent because this may substantially decrease consumer surplus in these markets such practices have important welfare implications

cross hedging minimum return guarantees basis and liquidity risks we reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment e g an external mutual fund we analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds we also take account of liquidity risk which arises since the insurer may need to advance funds for performing the hedge based on a least squares monte carlo simulation we study the economic implications of basis and liquidity risks we demonstrate that both risks may be surprisingly high and show how the design of the contract and the hedging strategy may help to alleviate them

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

bargain hunting or star gazing investors preferences for stock mutual funds investors who wish to purchase shares in mutual funds balance many types of information from a variety of sources when making their fund selection this research examines how investors choose a mutual fund within a given class of funds among the major findings are that investors pay a great deal of attention to past performance and vastly overweight loads relative to expense ratios when evaluating a fund s overall fee structure i also find that investors with a greater knowledge of basic finance are less likely not more likely to make reasonable fund choices

trade finance specialization and synchronization i investigate the determinants of business cycle synchronization across regions the linkages between trade in goods financial openness specialization and business cycle synchronization are evaluated in the context of a system of simultaneous equations the main results are as follows i specialization patterns have a sizable effect on business cycles most of this effect is independent of trade or financial policy but directly reflects differences in gdp per capita ii a variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized even though they also tend to be more specialized iii the estimated role of trade is closer to that implied by existing models once intra industry trade is held constant the results obtain in a variety of data sets measurement strategies and specifications they relate to a recent strand of international business cycle models with incomplete markets and transport costs and on the empir

asean income gap and the optimal exchange rate regime this article investigates the optimal exchange rate regime in a group of asean countries which minimizes the adverse effects of foreign demand shocks on real output the real exchange rate price

reprint of investors distraction and strategic repricing decisions abstract in this paper i analyze investors reactions to changes in the expense ratios of equity mutual funds i show that investment flows response to fees cannot be fully explained by looking at investors performance sensitivity while performance sensitivity monotonically increases with past performance price sensitivity does not investors who buy top past performers seem to be distracted by the fund s previous return and pay relatively little attention to the expense ratios moreover price sensitivity increases with fund visibility while performance sensitivity decreases and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds information for retail investors finally i show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior

the efficiency of sponsor and participant portfolio choices in 401 k plans abstract to evaluate the extent of inefficient behavior in 401 k pensions now the dominant form of retirement saving in america we attribute inefficiencies separately to the employer s menu design versus participant portfolio elections results from our analysis of over 1000 plans and a million participants demonstrate that most sponsors offer efficient investment menus but participants undo this by constructing inefficient portfolios thus reducing their potential retirement wealth by one fifth because participants are the main source of inefficient pension investment choices strategies targeting their behavior may be useful including improved default investment strategies or educational programs we also show that the number of options offered is less important than the range of funds provided when designing 401 k menus

a flow based explanation for return predictability this paper proposes and tests an investment ow based explanation for three empirical ndings on return predictability the persistence of mutual fund performance the smart

international business cycle co movement the role of fdi this article investigates the relationship between fdi and business cycle synchronization in the period 1982 to 2011 for eight industrialized countries we find that more synchronized business cycles are associated with stronger fdi relations in the period 1995 to 2011 but not before 1995 more intensive fdi links are also associated with a greater vulnerability to lagged output spillovers from abroad our findings suggest that fdi has become a separate channel through which economies may affect each other and that fdi stocks are now an essential aspect of economic interdependence

financial integration gdp correlation and the endogeneity of optimum currency areas the paper analyses the relationship between trade financial integration and business cycle synchronization in the euro area the introduction of the euro has had a noticeable impact on european financial markets evidence that capital market integration exerts a positive effect on output correlation has two major implications first it corroborates the hypothesis of the endogeneity of optimum currency areas whereby after joining a monetary union countries better meet standard oca criteria second it provides european policy makers with yet another reason to pursue financial integration in the euro area and in prospective members as well

smart fund managers stupid money we develop a model of mutual fund manager investment decisions near the end of quarters we show that when investors reward better performing funds with higher cash flows near quarter ends a mutual fund manager has an incentive to distort new invest ment toward stocks in which his fund holds a large existing position the short term price impact of these trades increase the fund s reported returns higher returns are rewarded by greater subsequent fund inflows which in turn allow for more investment distortion the next quarter because the price impact of trades is short term each subsequent quar ter begins with a larger return deficit eventually the deficit cannot be overcome thus our model leads to the empirically observed short run persistence and long run rever sal in fund performance in doing so our model provides a consistent explanation of many other seemingly contradictory empirical features of mutual fund performance jel classification d82 g2 g14

the adequacy of investment choices offered by 401k plans abstract the choices made by 401 k participants are the product of two different decisions what is offered and what is chosen while there have been a number of studies of the decisions made by participants in 401 k plans there have been no studies of the adequacy of the full set of choices offered to 401 k participants this paper analyzes the adequacy and characteristics of the choices offered to 401 k plan participants for over 400 plans we find that only 53 of the plans offer an adequate set of options and that over a 20 year period offering inadequate options makes a difference in terminal wealth of over 53 we find that funds included in the plans are riskier but have a slightly higher return than the general population of funds in the same categories however we find that the return difference is roughly equal to the difference in expenses between funds selected by plans and randomly selected funds we study the characteristics of plans that are associated with adequate investment choices including an analysis of the use of company stock plan size and the use of sophisticated strategies

mean variance theory in complete markets two paradigms in the pricing of risky assets are the complete markets model of arrow and debreu and mean variance pricing as embodied in the capital asset pricing model capm the former is primarily of theoretical interest in fact prior to the recent work of banz and miller 1978 and breeden and litzenberger 1978 there was little thought or hope of practical applications on the other hand the hegemony of the capm is due mostly to its apparent ease of applicability and to a lesser extent its empirical justification in a competitive market with no taxes transactions costs or institutional constraints on portfolio holdings the allocation of the available assets will be pareto optimal the end of period distribution of wealth or the consumption goods however will typically be pareto optimal only when there is available an arrow debreu security for each contingency since by definition a pareto superior reallocation is weakly preferred by all investors a complete set of arrow debreu markets should naturally arise provided they are not too costly to establish the complete markets model of arrow and debreu and the meanvariance capital asset pricing model capm are two paradigms of risky asset markets this paper provides an integration of these two theories we prove that the standard meanvariance separation theorem obtains in a complete market only if all investors have quadratic utility in addition the familiar capm pricing relation can hold for all assets in a complete market only if arbitrage opportunities exist on the positive side we show that the validity of this relation for the primary assets in a complete market is unaffected by the distribution of returns on the created financial assets

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

the persistence of risk adjusted mutual fund performance the authors examine predictability for stock mutual funds using risk adjusted returns they find that past performance is predictive of future risk adjusted performance applying modern portfolio theory techniques to past data improves selection and allows the authors to construct a portfolio of funds that significantly outperforms a rule based on past rank alone in addition they can form a combination of actively managed portfolios with the same risk as a portfolio of index funds but with higher mean return the portfolios selected have small but statistically significant positive risk adjusted returns during a period where mutual funds in general had negative risk adjusted returns copyright 1996 by university of chicago press

currency unions and international integration this paper characterizes the integration patterns of international currency unions such as the cfa franc zone we empirically explore different features of currency unions and compare them to countries with sovereign monies by examining the criteria for mundellos concept of an optimum currency area we find that members of currency unions are more integrated than countries with their own currencies for instance we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies business cycles are more highly synchronized across currency union countries than across countries with sovereign monies

investment with a conscience examining the impact of pro social attitudes and perceived financial performance on socially responsible investment behavior this article addresses the growing industry of retail socially responsible investment sri profiled mutual funds very few previous studies have examined the final consumer of sri profiled mutual funds therefore the purpose of this study was to in an exploratory manner examine the impact of a number of pro social financial performance and socio demographic variables on sri behavior in order to explain why investors choose to invest different proportions of their investment portfolio in sri profiled funds an ordinal logistic regression analysis on 528 private investors revealed that two of the three pro social variables had a positive impact on how much the consumer invested in sri profiled funds moreover there was proof of a non altruistic motive for investing in sri as consumers who perceive that financial return of sri is equal or better than regular mutual funds invested a greater proportion of their portfolio in sri profiled mutual funds furthermore the results showed that women and better educated investors were more likely to invest a greater proportion of their investment portfolio in sri overall the findings indicate that both financial perceptions and pro social attitudes are connected to consumer investment in sri

best performing us mutual fund families from 1993 to 2008 evidence from a novel two stage dea model for efficiency decomposition when analyzing relative performance especially at the institutional level the traditional data envelopment analysis dea models do not recognize vastly different and important activities as separate functions and therefore cannot identify which function may be the main source of inefficiency we propose a novel two stage dea model that decomposes the overall efficiency of a decision making unit into two components and demonstrate its applicability by assessing the relative performance of 66 large mutual fund families in the us over the period 1993 2008 by decomposing the overall efficiency into operational management efficiency and portfolio management efficiency components we reveal the best performers the families that deteriorated in performance and those that improved in their performance over the sample period we also make frontier projections for poorly performing mutual fund families and highlight how the portfolio managers have managed their funds relative to the others during financial crisis periods

market timing and mutual fund performance an empirical investigation the evaluation of investment performance is of importance for allocating investment funds efficiently and setting appropriate management fees because actively managed mutual funds are an important form of investment in the united states a valid question is whether the active management has achieved a sufficient increase in returns to offset the associated costs of information and transactions as well as the management fees charged as a corollary the ability to earn superior returns based on superior forecasting ability would be a violation of the efficient markets hypothesis and would have far reaching implications for the theory of finance 2 henriksson and merton 1981 present statistical techniques for testing forecasting ability with a particular emphasis on the market timing ability of investment managers the tests are derived from the basic model of market timing developed by merton 1981 where the forecaster predicts when stocks will outperform riskless securities and when riskless securities will outperform stocks but does not predict the magnitude of the relative returns the evaluation of the performance of investment managers is a topic of considerable interest to practitioners and academics alike using both the parametric and nonparametric tests for the evaluation of forecasting ability presented by henriksson and merton the market timing ability of 116 open end mutual funds is evaluated for the period 1968 80 the empirical results do not support the hypothesis that mutual fund managers are able to follow an investment strategy that successfully times the return on the market portfolio

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

refraining from imitation professional resistance and limited diffusion in a financial market why do some practices not spread although this is an important question for both diffusion theorists and those interested in institutional change we know surprisingly little about the limitations on diffusion because most diffusion studies sample on successful diffusion i address the question of why some practices fail to spread by introducing the concept of a deviance discount a deviance discount is a systematic downgrading of the observed adoption performance of controversial practices which limits the contagion of such practices i test and find qualitative and quantitative support for my thesis in the product introduction behavior of swedish mutual fund firms my findings hold implications for diffusion theory and theories of endogenous institutional change

all s well that ends well on the importance of how returns are achieved we demonstrate that investor satisfaction and investment behavior are influenced substantially by the price path by which the final investor return is achieved in a series of experiments we analyze various different price paths investors are most satisfied if their assets first fall in value and then recover and they are least satisfied with the opposite pattern independent of whether the final return is positive or negative price paths systematically influence risk preferences return beliefs and ultimately trading decisions our results enable a much more holistic perspective on a wide range of topics in finance such as the disposition effect risk taking behavior after previous gains and losses and behavioral asset pricing

a new test of the three moment capital asset pricing model this paper tests the kraus litzenberger 1976 three moment capital asset pricing model using hansen s 1982 generalized method of moments gmm the gmm approach does not impose strong distributional assumptions on the asset returns this is an interest ing issue since there is no obvious multivariate distribution for returns that also exhibits co skewness using monthly stock returns to test the model there is some evidence that systematic skewness is priced

brothers from different mothers how distribution fees change investment behavior abstract we ask whether loads affect investment flows in the us mutual fund industry we argue that sales fees make the investment decision partially irreversible under these circumstances investors await for a stronger signal of managerial ability before committing to a new fund this stronger signal can take the form of a particularly strong performance or a particularly long series of positive performance realizations looking at pairs of fund shares with the same portfolio but different sales fee arrangements we show that investment flows in share classes with front loads react disproportionally to good performances higher convexity in the flow performance relationship and react to performance realizations further back in time longer memory a counterfactual example of fund shares with back end loads allows us to rule out the hypothesis that this behavior is due to the incentive structure of brokers finally we show that these behavioral modifications induced by front loads have a negative and significant effect on investors timing ability

deciding for others reduces loss aversion we study risk taking on behalf of others both when choices involve losses and when they do not a large scale incentivized experiment with subjects randomly drawn from the danish population is conducted we find that deciding for others reduces loss aversion when choosing between risky prospects for which losses are ruled out by design subjects make the same choices for themselves as for others in contrast when losses are possible we find that the two types of choices differ in particular we find that subjects who make choices for themselves take less risk than those who decide for others when losses loom this finding is consistent with an interpretation of loss aversion as a bias in decision making driven by emotions and that these emotions are reduced when making decisions for others

efficiency with costly information a study of mutual fund performance 1965 1984 if information is costly to collect and implement then it is efficient for trades by informed investors to occur at prices sufficiently different from full information prices to compensate them for the cost of becoming informed this notion is tested by evaluating investment performance in the mutual fund industry over a 20 year period the study finds evidence that is consistent with optimal trading in efficient markets risk adjusted returns in the mutual fund industry net of fees and expenses are comparable to returns available in index funds and portfolio turnover and management fees are unrelated to fund performance

portfolio performance evaluation old issues and new insights this article presents a model that provides insights about various measures of portfolio performance the model explores several criticisms of these measures these include the problem of identifying an appropriate benchmark portfolio the possibility of overestimating risk because of market timing ability and the failure of informed investors to earn positive risk adjusted returns because of increasing risk aversion the article argues that these need not be serious impediments to performance evaluation

trade and business cycle synchronization in oecd countries a re examination this paper re examines the relationship between trade intensity and business cycle synchronization for 21 oecd countries in the period 1970 2003 instead of using instrumental variables we estimate a multivariate model including variables capturing specialization and similarity of economic policies we confirm that trade intensity affects synchronization but the effect is much smaller than previously reported other factors like specialization and convergence in monetary and fiscal policies have a similar impact on business cycle synchronization as trade intensity the effect of trade on synchronization is not driven by outliers however the impact of trade on synchronization is not robust across deciles c 2007 elsevier b v all rights reserved

when cheaper is better fee determination in the market for equity mutual funds abstract in this paper we develop a model of the market for equity mutual funds that captures three key characteristics of this market first there is competition among funds second fund managers ability is not observed by investors before making their investment decisions third some investors do not make optimal use of all available information the main results of the paper are that 1 price competition is compatible with positive mark ups in equilibrium and 2 worse performing funds set fees that are greater or equal to those set by better performing funds these predictions are supported by available empirical evidence

measuring investment performance in a rational expectations equilibrium model much research has been concerned with evaluating the performance of managed portfolios e g mutual funds and examining whether portfolio managers display in some sense superior performance superior performance would seemingly turn on the possession of superior information that is utilized in managing portfolios in general a fund s asset holdings or portfolio weights might not be observable to an outsider whether they are or not however they are likely to change over time this happens especially when better performance is a result of superior information since managers will change their portfolio composition on obtaining private information since such changes must be taken into account the problem of measuring performance of managed portfolios is inherently different from that of evaluating the performance of individual assets groups of assets or generally portfolios with constant and known composition

the long and short of it why are stocks with shorter runs preferred this article examines how consumers process graphical financial information to estimate risk we propose that consumers sample the local maxima and minima of a graph to infer the variation around a trend line which is used to estimate risk the local maxima and minima are more extreme the higher the run length of the stocks the consecutive number of upward or downward movements of a price series with identical mean variance skewness and kurtosis three experiments show that this leads to stocks with higher run lengths being perceived as riskier the run length effect importantly the run length effect is greater for investors who are more educated are employed full time trade more frequently have had longer experience trading and trade a wider range of financial instruments implications for the communication of financial products public policy and consumer welfare are discussed as are theoretical implications for the processing of visual and financial information and behavioral finance

yield spreads on emu government bonds government bond spreads we provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors as measured by banking and corporate risk premiums in the united states are more pronounced for bonds issued by italy and spain liquidity factors play a smaller role so policies meant to increase financial market efficiency do not appear sufficient to deliver a seamless bond market in the euro area the risk of default is a small but important component of yield differentials movements which signal market perceptions of fiscal vulnerability impose market discipline on national fiscal policies and may be reduced only by further convergence in debt ratios lorenzo codogno carlo favero and alessandro missale

why does the law of one price fail an experiment on index mutual funds we conduct an experiment to evaluate why individuals invest in high fee index funds in our experiments subjects allocate 10 000 across four s p 500 index funds and are rewarded for their portfolio s subsequent return subjects overwhelmingly fail to minimize fees we can reject the hypothesis that subjects buy high fee index funds because of bundled non portfolio services search costs for fees matter but even when we eliminate these costs fees are not minimized instead subjects place high weight on annualized returns since inception fees paid decrease with financial literacy interestingly subjects who choose high fee funds sense they are making a mistake

efficiency with costly information a reinterpretation of evidence from managed portfolios we investigate the informational efficiency of mutual fund performance for the period 1965 84 results are shown to be sensitive to the measurement of performance chosen we find that returns on s p stocks returns on non s p stocks and returns on bonds are significant factors in performance assessment once we correct for the impact of non s p assets on mutual fund returns we find that mutual funds do not earn returns that justify their information acquisition costs this is consistent with results for prior periods coauthors are martin j gruber sanjiv das and matthew hlavka article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

investors distraction and strategic repricing decisions in this paper i analyze investors reactions to changes in the expense ratios of equity mutual funds i show that investment flows response to fees cannot be fully explained by looking at investors performance sensitivity while performance sensitivity monotonically increases with past performance price sensitivity does not investors who buy top past performers seem to be distracted by the fund s previous return and pay relatively little attention to the expense ratios moreover price sensitivity increases with fund visibility while performance sensitivity decreases and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds information for retail investors finally i show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior

measuring and analysing the effects of short term volatility in real exchange rates this paper examines short term volatility in the real effective exchange rates of industrial countries and its impact on their imports it yields three conclusions first volatility has not diminished as markets have gained experience with floating exchange rates the trend appears to be in the opposite direction for some countries second exposure to short term volatility has differed among countries japan and sweden have experienced much more than most other industrial countries third volatility appears to depress the volume of international trade this third finding is consistent with results reported by cushman and by akhtar and hilton and challenges earlier findings by hooper and kohlhagen

hroot hamburg registration and organization online tool abstract hroot hamburg registration and organization online tool is a web based software designed for managing participants of economic experiments this package provides important features to assure a randomized invitation process based on a filtered pre specified subject pool and a complete documentation of the selection procedure for potential participants of an experiment

survivorship bias and attrition effects in measures of performance persistence we simulate standard tests of performance persistence using alternative returngenerating processes survival criteria and test methodologies when survival depends on performance over several periods survivorship bias induces spurious reversals despite the presence of cross sectional heteroskedasticity in performance look ahead biased methodologies and missing nal returns typical of u s mutual fund datasets can also materially a ect persistence measures our results reinforce previous ndings that u s mutual fund performance is truly persistent when fund performance is truly persistent fund attrition a ects persistence measures even when the sample includes all nonsurvivor returns we also examine the speci cation and power of the various persistence tests 1999 elsevier science s a all rights reserved

inferior products and profitable deception we analyse conditions facilitating profitable deception in a simple model of a competitive retail market firms selling homogenous products set anticipated prices that consumers understand and additional prices that naive consumers ignore unless revealed to them by a firm where we assume that there is a binding floor on the anticipated prices our main results establish that bad products those with lower social surplus than an alternative tend to be more reliably profitable than good products specifically 1 in a market with a single socially valuable product and sufficiently many firms a deceptive equilibrium in which firms hide additional prices does not exist and firms make zero profits but perversely 2 if the product is socially wasteful then a profitable deceptive equilibrium always exists furthermore 3 in a market with multiple products since a superior product both diverts sophisticated consumers and renders an inferior product socially wasteful in comparison it guarantees that firms can profitably sell the inferior product by deceiving consumers we apply our framework to the mutual fund and credit card markets arguing that it explains a number of empirical findings regarding these industries

risk taking for oneself and others a structural model approach economic theory makes no predictions about social factors affecting decisions under risk we examine situations in which a decision maker decides for herself and another person under conditions of payoff equality and compare them to individual decisions by estimating a structural model we find that responsibility leaves utility curvature unaffected but accentuates the subjective distortion of very small and very large probabilities for both gains and losses we also find that responsibility reduces loss aversion but that these results only obtain under some specific definitions of the latter these results serve to generalize and reconcile some of the still largely contradictory findings in the literature they also have implications for financial agency which we discuss

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

decision making for others the case of loss aversion risky decisions are at the core of economic theory while many of these decisions are taken on behalf of others rather than for oneself the existing literature finds mixed results on whether people take more or less risk for others then for themselves recent studies suggest that taking decisions for others reduces loss aversion thereby increasing risk taking on behalf of others to test this we elicit loss aversion in three treatments making risky decisions for oneself for one other subject or for the decision maker and another person combined we find a clear treatment effect when making decisions for others but not when making decisions for both

the performance of us equity mutual funds the paper examines the performance of us no load equity mutual funds fund performance is derived using stochastic frontier analysis for a flexible functional form this analysis allows us to derive parametric estimates of efficiency scores for each fund in our sample for the first time in the literature our results indicate that us no load equity funds display varying levels of efficiency over time but also depending on size and on investment style robustness analysis reaffirm the efficiency scores remain consistent across different selections of inputs and outputs as well as the underlying distribution of the return having estimated each fund s efficiency in the sample we unveil their underlying dynamics also with respect to risk and operational characteristics such as flows assets and morningstar star ratings panel var estimations reveal that the response of funds efficiency to a shock in risk is positive and substantial some evidence of reverse causality is also observed finally we extend our analysis to investigate the relationship between funds performance and key covariates across subgroups defined by size

do hedge funds deliver alpha a bayesian and bootstrap analysis abstract using a robust bootstrap procedure we find that top hedge fund performance cannot be explained by luck and hedge fund performance persists at annual horizons moreover we show that bayesian measures which help overcome the short sample problem inherent in hedge fund returns lead to superior performance predictability sorting on bayesian alphas relative to ols alphas yields a 5 5 per year increase in the alpha of the spread between the top and bottom hedge fund deciles our results are robust and relevant to investors as they are neither confined to small funds nor driven by incubation bias backfill bias or serial correlation

hot hands in mutual funds short run persistence of relative performance 1974 1988 the relative performance of no load growth oriented mutual funds persists in the near term with the strongest evidence for a one year evaluation horizon portfolios of recent poor performers do significantly worse than standard benchmarks those of recent top performers do better though not significantly so the difference in risk adjusted performance between the top and bottom octile portfolios is six to eight percent per year these results are not attributable to known anomalies or survivorship bias investigations with a different previously used data set and with some post 1988 data confirm the finding of persistence

hot hands in bond funds we investigate persistence in the relative performance of 3549 bond mutual funds from 1990 to 2003 we show that bond funds that display strong weak performance over a past period continue to do so in future periods the out of sample difference in risk adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3 5 percent per year we demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return suggesting that bond fund investors can exploit the observed persistence our results are robust to a wide range of model specifications and bootstrapped test statistics

lower grade bonds their risks and returns to reflect as realistically as possible the risks and returns of lower grade bonds the authors constructed an index from actual average returns used in the compilation of the salomon brothers and drexel burnham lambert lower grade indexes supplementing these with month end prices prior to 1982 from the sp thus a diversified portfolio may contain both the debt and equity of the issuing companies

a theory of optimal timing and selectivity abstract we solve an extended optimal portfolio problem in continuous time for any horizon where we allow the mean and variance of returns to be stochastic introduce fund flows to and from the portfolio permit differential investor preferences for dividend versus growth stocks and allow the investor to buy costly information on the random mean and variance of the portfolio to improve his portfolio choice set this model provides analytical results especially useful in understanding the expenditure on timing and selection information a mutual fund undertakes in attempting to improve performance relative to a benchmark we examine this proposition for growth and income funds long and short investment horizons and also account for fund inflows and outflows we also combine our model of costly learning with the traditional model of incomplete information to understand the interaction between costly and costless learning the approach taken is a purely theoretical one and in this regard the paper is normative in spirit we anticipate that the propositions in this paper will provide two byproducts i a framework for fund managers to think about how to allocate information expenses between timing and selection skills and ii give academics especially empirical researchers a theoretical backdrop against which to examine the mutual fund industry

does historical performance predict future performance an investigation of the persistence of mutual fund performance indicates that investors need more than past performance numbers to pick future winners in this study style analysis was used to separate fund total returns into style and selection components performance was defined in terms of total returns selection returns and information ratios ratios of selection return to selection risk for each fund type two out of sample periods were established to investigate persistence of performance from one period to the next using regression analysis and contingency tables the evidence supported persistence only for fixed income fund performance this persistence is beyond any effects of fund fees and expenses or data base survivorship bias unfortunately this persistence edge cannot overcome the average underperformance of fixed income funds resulting from fees and expenses

the performance of bond mutual funds using linear and nonlinear models the authors examine two samples of bond funds one sample designed to eliminate survivorship bias and a second much larger sample overall and for subcategories of bond funds they find that bond funds underperform relevant indexes postexpenses the authors results are robust across a wide choice of models they find that on average a percentage point increase in expenses leads to a percentage point decrease in performance the nonlinear model weights closely match actual composition weights the authors find no evidence of predictability using past performance to predict future performance for their unbiased sample copyright 1993 by university of chicago press

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item