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

a statistical approach to identifying poorly performing countries abstract this paper asks whether it is possible to identify using purely statistical criteria on widely available quantitative data a set of developing countries that can be classified as poor performers we restrict attention to two performance indicators economic growth and infant mortality over two periods 1980 90 and 1990 2000 and use four different statistical criteria to identify poor performance the main finding is that very few countries consistently appear as poor performers those that perform poorly on one indicator or in one period typically do not perform poorly on in the other a similar result is obtained in the context of identifying on statistical grounds good performers the research cautions against labelling countries as poor performers without careful qualification

the big push natural resource booms and growth a simple application of big push reasoning suggests that natural resource booms can be important catalysts for development in poorer countries in this paper we present evidence from seven latin american countries that natural resource booms are sometimes accompa nied by declining per capita gdp we present a model with natural resources increasing returns in the spirit of big push models and expectations to clarify some of the reasons this may happen q 1999 elsevier science b v all rights reserved

hidden survivorship in hedge fund returns this study identifies a previously unreported bias in the tass database owing to a merger with the tremont database 60 percent of the funds added to the tass database between april 1999 and november 2001 are likely to be survivors i e funds that were selected only from funds that were live as of 31 march 1999 the resulting survivorship bias is substantial averaging more than 5 percent a year what would normally be termed the backfill period actually represents hidden survivorship a sorting algorithm to exclude these fund histories is proposed

too big to ignore hedge fund flows and bond yields abstract this paper investigates the information content of aggregate hedge fund flow and its predictive power with respect to bond yields using a sample of 9725 hedge funds from 1994 to 2012 we find that fund flow is negatively related to the changes in 10 year treasury and moody s baa bond yields one month ahead this relation is still pronounced after controlling for other determinants of yield changes including the amount of arbitrage capital available in the economy suggesting a non trivial effect of flow induced hedge fund trading on bond yields flow impact on corporate bonds is further amplified during periods of decreasing market liquidity consistent with a fire sale hypothesis hedge fund flow also predicts convergence between constant maturity swap rate and constant maturity treasury rate as well as between the tips and treasury bond yields suggesting that hedge funds exploit arbitrage opportunities in these fixed income markets

living and dying with hard pegs the rise and fall of argentina s currency board the rise and fall of argentina s currency board shows the extent to which the advantages of hard pegs have been overstated the currency board did provide nominal stability and boosted financial intermediation at the cost of endogenous financial dollarization but did not foster monetary or fiscal discipline the failure to adequately address the currency growth debt trap into which argentina fell at the end of the 1990s precipitated a run on the currency and the banks followed by the abandonment of the currency board and a sovereign debt default the crisis can be best interpreted as a bad outcome of a high stakes strategy to overcome a weak currency problem to increase the credibility of the hard peg the government raised its exit costs which deepened the crisis once exit could no longer be avoided but some alternative exit strategies would have been less destructive than the one adopted

what makes growth sustained abstract we identify structural breaks in economic growth in 140 countries and use these to define growth spells periods of high growth preceded by an upbreak and ending either with a downbreak or with the end of the sample growth spells tend to be shorter in african and latin american countries than elsewhere we find evidence that growth duration is positively related to the degree of equality of the income distribution democratic institutions export orientation with higher propensities to export manufactures greater openness to fdi and avoidance of exchange rate overvaluation favorable for duration and macroeconomic stability

does it pay to pay performance fees empirical evidence from dutch pension funds abstract we analyze the relation between investment returns and performance fees for 218 dutch occupational pension funds with an average total of 1090 billion euro in assets under management from 2012 to 2017 our dataset is free from self reporting biases and includes total return excess return and performance fees for six major asset classes we find no statistical evidence that the returns of pension funds that pay performance fees to asset managers for active investing are significantly higher or lower than the returns of pension funds that do not pay performance fees this is true for most asset classes and robust if we correct for risk we also document that large and more specialized pension funds pay less performance fees for a given level of excess return in alternative asset classes such as hedge funds and private equity this is possibly the result of better negotiation power due to their larger scale or higher level of expertise

the risk in hedge fund strategies theory and evidence from trend followers hedge fund strategies typically generate option like returns linear factor models using benchmark asset indices have difficulty explaining them following the suggestions in glosten and jagannathan 1994 this article shows how to model hedge fund returns by focusing on the popular trend following strategy we use lookback straddles to model trend following strategies and show that they can explain trend following funds returns better than standard asset indices though standard straddles lead to similar empirical results lookback straddles are theoretically closer to the concept of trend following our model should be useful in the design of performance benchmarks for trend following funds

institutions and financial dollarization indirect effects based on a policy experiment we provide evidence that institutional improvements lead to lower levels of financial dollarization through previously unidentified channels these indirect channels operate in addition to the direct impact identified in the literature and further illustrate the importance of institutions for the extent of banking dollarization

hedge funds risk and return from a database that is relatively free of bias this article provides measures of the returns of hedge funds and of the distinctly nonnormal characteristics of the data the results include risk adjusted measures of performance and tests of the degree to which hedge funds live up to their claim of market neutrality the substantial attrition of hedge funds is examined the determinants of hedge fund demise are analyzed and results of tests of return persistence are presented the conclusion is that hedge funds are riskier and provide lower returns than is commonly supposed

classifying exchange rate regimes deeds vs words abstract most of the empirical literature on exchange rate regimes uses the imf de jure classification based on the regime announced by the governments despite the recognized inconsistencies between reported and actual policies in many cases to address this problem we construct a de facto classification based on data on exchange rates and international reserves from all imf reporting countries over the period 1974 2000 which we believe provides a meaningful alternative for future empirical work on the topic the classification sheds new light on several stylized facts previously reported in the literature in particular we find that the de facto pegs have remained stable throughout the last decade although an increasing number of them shy away from an explicit commitment to a fixed regime hidden pegs we confirm the hollowing out hypothesis but show that it does not apply to countries with limited access to capital markets we also find that pure floats are associated with only relatively minor nominal exchange rate volatility and that the recent increase in the number of de jure floats goes hand in hand with an increase in the number of de facto dirty floats fear of floating

higher risk lower returns what hedge fund investors really earn abstract the returns of hedge fund investors depend not only on the returns of the funds they hold but also on the timing and magnitude of their capital flows in and out of these funds we use dollar weighted returns a form of internal rate of return irr to assess the properties of actual investor returns on hedge funds and compare them to buy and hold fund returns our main finding is that annualized dollar weighted returns are on the magnitude of 3 to 7 lower than corresponding buy and hold fund returns using factor models of risk and the estimated dollar weighted performance gap we find that the real alpha of hedge fund investors is close to zero in absolute terms dollar weighted returns are reliably lower than the return on the standard poor s s p 500 index and are only marginally higher than the risk free rate as of the end of 2008 the combined impression from these results is that the return experience of hedge fund investors is much worse than previously thought

fees eat diversification s lunch although diversification is often spoken of as the only free lunch in investing the authors show that it is not free and that it must be considered in light of its costs they also show that fees on diversifying asset classes are high relative to their risk adjusted diversification benefit with the more exotic asset classes carrying higher price tags because there is meaningful cross sectional variation fees need to be considered when making strategic asset allocation decisions

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

hedge fund benchmarks information content and biases we discuss the information content and potential measurement biases in hedge fund benchmarks hedge fund indexes built from databases of individual hedge funds inherit the measurement biases in the databases in addition broad based indexes mask the diversity of individual hedge fund return characteristics consequently these indexes provide incomplete information to investors seeking diversification from traditional asset classes through the use of hedge funds the approach to constructing hedge fund benchmarks we propose is based on the simple idea that the most direct way to measure hedge fund performance is to observe the investment experience of hedge fund investors themselves the funds of hedge funds fofs in terms of measurement biases returns of fofs can deliver a cleaner estimate of the investment experience of hedge fund investors than the traditional approach in terms of risk characteristics indexes of fofs are more indicative of the demand side dynamics driven by hedge fund investors p

empirics of hills plateaus mountains and plains a markov switching approach to growth abstract most economic growth research has been aimed at explaining cross country differences in average growth rates however it is well known that growth experiences differ over time within a country almost as much as they differ among countries this paper builds on pritchett s 2000 pritchett lant understanding patterns of economic growth searching for hills among plateaus mountains and plains world bank economic review may 2000 14 2 221 250 observation that the growth process can be thought of as transitions between different growth regimes and proposes a framework for systematic analysis of such regimes and the dynamics of the transitions i estimate a markov switching regression to characterize four distinct growth regimes and transitions between them the results show that countries switch among regimes of stable growth miracle catch up stagnation and crisis with the transition probabilities determined by the quality of institutions better institutions appear to improve long run growth by making episodes of fast growth more persistent low average growth rates in countries with weak institutions are a result of these countries spending more time in stagnation regimes rather then being incapable of fast growth at all weak institutions do not rule out growth takeoffs but limit their sustainability the approach directs attention to shifts in growth performance and highlights the fact that identical average growth rates can mask very distinct growth paths

the long run relationship between trade and population health evidence from five decades in recent years the increase in international trade has sparked a debate about the impact of international trade on population health to date however there has been very little econometric research on the relationship between these two variables this paper examines the long run relationship between trade openness and population health for a sample of 74 countries over five decades from 1960 to 2010 using panel time series techniques it is shown that international trade in general has a robust positive long run effect on health as measured by life expectancy and infant mortality this effect tends to be greater in countries with lower development levels higher taxes on income profits and capital gains and less restrictive business and labour market regulations

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

the high price of dematerialization a dynamic panel data analysis of material use and economic recession abstract dematerialization at the national level occurs almost exclusively during periods of economic recession or low growth while recession is not a sustainable strategy to curb environmental impact such periods may offer important insights on the possibilities of reducing material use economic recession research has focused on the interactions between macroeconomic and financial variables with little systematic research dedicated to uncovering how resource use develops during periods of recession using a dynamic panel model we investigate whether and to what extent material use in a sample of 150 economies between 1970 and 2010 was affected by recession and low growth recession occurred most frequently and in more than two thirds of all countries during the 1980s and the 1990s in the 2000s more than half of the recessions occurred during the financial crisis of 2008 periods of recession were significantly and negatively correlated with material use they tended to coincide with dematerialization material use decreased in recession years but the significant correlations with growth in material use became weaker as growth rates increased construction minerals and metals used to build stocks of manufactured capital reacted more strongly to economic fluctuations than the throughput dominated flows of biomass and fossil fuels we conclude that the systematic link between recession and dematerialization can become policy relevant if the mechanisms causing reductions in material use during these periods are identified

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

financial dollarization and systemic risks new empirical evidence abstract this paper explores the persistence of financial dollarization in a group of 79 economies with different levels of development our main hypothesis is that a high level of domestic debt combined with default risk explains this persistence even after a decline in inflation rates using the generalized method of moments gmm in a panel data analysis our results show that inflation risks caused by increasing probability of default account for financial dollarization more than inflation rate itself after the decrease in inflation rates the foreign currency denominated deposits remain large because of the high debt to gdp ratios particularly in speculative grade economies high public indebtedness leads to expectations of default dollarization is a rational response to the future inflation associated with investors expectations of default observed in highly indebted economies

dollarization of bank deposits causes and consequences abstract this paper assesses the benefits and risks associated with dollarization of bank deposits we provide novel empirical evidence on the determinants of deposit dollarization its role in promoting financial development and on whether dollarization is associated with financial instability we find that a the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross country variations in dollarization b dollarization is likely to promote financial deepening only in a high inflation environment and c financial instability is likely higher in dollarized economies the implications of these findings for financial sector and monetary policies are briefly discussed

does growing wealth influence hedge funds development an empirical analysis abstractalternative investments such as hedge funds have in last years become an integral part of the investment portfolios of the wealthy the article s goal is also to answer the following research question does the global wealth of the world have impact on the global value of the hedge funds assets we also try to forecast the value of the hedge funds assets for the next years 2015 2017 the results from this study would also be valuable to investors and other stakeholders such as the regulators and the creditors of the hedge funds

are developing countries catching up this paper reviews catch up growth in various parts of the world especially in the twentieth century with a particular focus on what this implies for the global south in 1950 us per capita national income adjusted for purchasing power was nearly five times the world average since then western europe and japan have closed their per capita income gaps with the usa east asia south asia and some other developing countries have also started to close their gaps with the west in recent decades thus after well over a century of growing international economic disparities or divergence the world has witnessed an era of uneven catching up with the north in parts of the south since the mid twentieth century

monetary expansion and real exchange rate dynamics this paper examines the effect of a change in the rate of monetary expansion on the dynamics of the real exchange rate under fully flexible domestic prices and a floating exchange rate the model is similar in structure to an ealier paper by calvo and rodriguez the main difference being that in our model consumers have an infinite planning horizon and long run perfect foresight one of the main findings is that an increase in the rate of monetary expansion has the impact effect of creating a real appreciation of the exchange rate and a deterioration of the balance of payments contrary to the results of calvo and rodriguez

performance characteristics of hedge funds and commodity funds natural vs spurious biases it is well known that the pro forma performance of a sample of investment funds contains biases these biases are documented in brown goetzmann ibbotson and ross 1992 using mutual funds as subjects the organization structure of hedge funds as private and often offshore vehicles makes data collection a much more onerous task amplifying the impact of performance measurement biases theis paper reviews these biases in hedge funds we also propose using funds of hedge funds to measure aggregate hedge fund performance based on the idea that the investment experience of hedge fund investors can be used to estimate the performance of hedge funds

endogenous deposit dollarization this paper explores sources of deposit dollarization unrelated to standard moral hazard arguments we argue that the equal treatment of peso and dollar claims on a bank in the event of default can induce banks to attract dollar deposits above the socially desirable level the distortion arises because dollar depositors are the only source of default risk in the model but they share the burden of the default with peso depositors as interest rates cannot be set contingent to the unobserved level of deposit dollarization the incentive to dollarize is reinforced by common banking system safety nets such as deposit and bank insurance our findings suggest that regulators in bi currency economies should depart from the currency blind benchmark and instead distinguish across currencies in a way that prevents undesirable currency mismatches even in the absence of moral hazard related to the relaxation of market discipline

do weak institutions prolong crises on the identification characteristics and duration of declines during economic slumps this paper studies periods of prolonged contractions in output per capita in a sample of 145 countries from 1950 to 2014 economic slumps are defined as abrupt interruptions of a period of growth by several regime switches slumps start with a sharp contraction along with a trend break which is followed by another switch when growth stabilizes again the paper then analyzes the correlates of these slumps focusing on the length and depth of the contraction from the beginning of the slump to its trough the results establish three new stylized facts i weak political institutions predate crises whereas political reforms tend to follow them ii the length and depth of economic declines are robustly correlated with executive constraints and ethnic heterogeneity and iii there is a robust interaction between these two variables suggesting that institutions constraining leaders are important for stabilizing growth this is particularly relevant for sub saharan africa where politics are often ethnic and decision makers are comparatively unconstrained

currency substitution in mexico the dollarization problem the term dollarization will be interpreted in this paper as the degree to which real and financial transactions are performed in dollars relative to those realized in domestic currency an obvious choice for measuring the degree of dollarization in the economy is the proportion of dollars to domestic currency circulating at any point in time this concept of dollarization is closely related to the literature on currency substitution which explains the conditions under which foreign money balances will be held and adapted to expected changes in relative risks and returns among the various currencies the general idea of several representative recent papers see 6 9 12 is that monetary policy will be ineffective in a country where foreign currencies are regarded as good substitutes for domestic currency an implication of this hypothesis is that the elasticity of substitution between domestic and foreign currencies is likely to increase in periods when the exchange rate is floating hence if the issue of currency substitution is empirically relevant one of the stronger arguments for floating exchange rates greater national monetary independence is seriously weakened

the abcs of hedge funds alphas betas and costs the authors decomposed their estimated pre fee 1995 2009 hedge fund return of 11 13 percent into fees 3 43 percent an alpha 3 00 percent and a beta 4 70 percent the year by year results show that alphas were positive during every year of the past decade even during the recent financial crisis

business cycle fluctuations large macroeconomic shocks and development aid abstract we examine the cyclical properties of development aid using bilateral data for 22 donors and 113 recipients during 1970 2005 we find that bilateral aid flows are on average procyclical with respect to the business cycle in both donor and recipient countries while aid outlays contract sharply during severe downturns in donor countries they rise steeply when aid receiving countries experience large adverse shocks our findings suggest that development aid may play an important cushioning role in developing countries but only during times of severe macroeconomic stress our results are robust to alternate definitions of aid flows specifications and estimation techniques

crystallization a hidden dimension of cta fees the authors investigated the impact on fee load of variations in the frequency with which commodity trading advisers update their high water mark they documented crystallization frequencies used in practice analyzed the effect on fee load and found that the crystallization frequency set by the manager significantly affects fee load and should thus be a relevant consideration for investors

dollarization exchange rate regimes and government quality abstract the dollarization of the domestic banking system represents a source of vulnerability for emerging market countries and a debate has emerged over whether the exchange rate regime has an impact on dollarization this paper argues that the regime is far less important than the literature has previously claimed unofficial dollarization results from a lack of faith in the domestic currency which ultimately stems from the belief that the government will not follow policies that promote long run currency stability empirical results indicate that improved government quality reduces unofficial dollarization while the exchange rate regime plays no direct role in promoting dollarization

global hedge funds risk return and market timing we examined the performance of 115 global equity based hedge funds with reference to their target geographical markets in the seven year period 1994 2000 several results are noteworthy first global hedge fund managers do not show positive market timing ability but do demonstrate superior security selection ability the jensen s alphas we found before and after controlling for market timing are sizable and positive second incentive fees and leverage both have a significant positive impact on a hedge fund s risk adjusted return as demonstrated by sharpe ratios and jensen s alphas but not on a fund s selectivity index i e its performance after controlling for market timing effects third incentive fees can lower the hedge fund s up market and down market systematic risk fourth the size of a hedge fund is consistently related to its return performance finally contrary to the general perception leverage does not significantly affect the systematic risk of hedge funds

portfolio theory and currency substitution one of the major reasons friedman 1953 and johnson 1972 advocated flexible exchange rates was to eliminate supply side monetary substitutability which can incapacitate domestic monetary policy however contributors to the currency substitution literature including miles 1978 girton and roper 1981 and mckinnon 1982 have argued that when economic agents hold both domestic and foreign monies variations in foreign interest rates or expected future exchange rates can make domestic money demand functions unstable as economic agents shift resources in response to changes in prospective relative returns as a result they and others have claimed that flexible exchange rates may not secure domestic monetary autonomy l the major purpose of this paper is to demonstrate the conditions under which foreign and domestic monies are substitutes in demand when economic agents have motives to hold both and to contrast the determinants of currency substitutability with those of the more general concept of asset substitutability importantly it is demonstrated that the usual portfolio theoretic justification for including opportunity cost variables such as foreign interest rates foreign inflation rates or expected

real income stagnation of countries 1960 2001 abstract this paper examines the phenomenon of real income stagnation in which real income growth is uninterruptedly negligible or negative for a sizable sequence of years we analyse data for four decades from a large cross section of countries real income stagnation is a conceptually distinct phenomenon from low average growth and other features of the growth sequence that have been previously considered we find that real income stagnation has affected a significant number of countries 103 out of 168 and resulted in substantial income loss countries that suffered spells of real income stagnation were more likely to be poor in latin america or sub saharan africa conflict ridden and dependent on primary commodity exports stagnation is also very likely to persist over time countries that were afflicted with stagnation in the 1960s had a likelihood of 75 per cent of also being afflicted with stagnation in the 1990s