international direct real estate investment a review of the literature this paper provides a critical review of research on international direct real estate investment issues to date no review article has explored the various findings of studies completed on the benefits of international real estate diversification in the past 10 years the quantity and variety of work have increased dramatically the paper is organised by how investing in a real estate asset is analysed in a mixed asset portfolio context or a real estate only portfolio context a fourth section focuses on research that has explored currency risk one of the prevailing risks associated with international investing the last section provides conclusions about the research and offers ideas for future research in this growing area of real estate investment

measuring investment performance with a stochastic parameter regression model abstract this paper develops a generalization of the hildreth and houck 1968 random coefficient model for use in evaluating the macroforecasting ability of portfolio managers most studies have assumed that astute managers ignore the strength of the market trend and create a binary portfolio beta with one value during up markets and a lower value during down markets in contrast this paper examines a model in which the superior manager adjusts beta period by period according to changing market conditions the findings indicate that portfolio managers are not superior macroforecasters

incentives and efficiency in the market for management services a study of canadian mutual funds this paper examines the incentives offered managers of canadian equity mutual funds when their compensation is based upon the market value of the assets they manage although this method of compensation supplies a very weak direct link between performance and the remuneration of managers we show that competition

industry rotation in the u s stock market 1934 1986 returns on passive semi passive and active strategies abstract this paper compares the returns to three distinct sets of approaches to industry rotation in the u s stock market passive semi passive and active using the 12 industry breakdown of breeden gibbons and litzenberger 1989 the passive strategies are based on the up and down levered value weighted industry indices and the semi passive strategies are similarly constructed from the equal weighted industry indices the active strategies are based on multiperiod investment theory and the empirical probability assessment approach applied to past realized returns the semi passive and active strategies performed well in both the full 1934 1986 period and in the 1966 1986 subperiod achieving statistically significant excess returns in several instances

does international diversification work better for real estate than for stocks and bonds international diversification is now an established fact for stock and bond portfolios for real estate shares however this acceptance has so far not been the case this study is an investigation of the effectiveness of international real estate diversification relative to international diversification of stock and bond portfolios tests of international correlation matrixes of real estate returns common stock returns and bond returns indicate significantly lower correlations between national real estate returns than between common stock or bond returns the implication is that international diversification reduces the risk of a real estate portfolio more than that of common stock and bond portfolios

small sample analysis of performance measures in the asymmetric response model this paper reviews and extends definitions and properties of the three classical performance statistics the sharpe ratio the treynor index and jensen s alpha by locating them in a more general framework the asymmetric response mode this allows various notions of beta which can be related to downside risk to be employed and includes as special cases a market timing model and the mean variance capm due to the general lack of data on fund performance in practice our emphasis is on small sample analysis where possible we illustrate our results empirically using data on 15 u s based emerging markets investment funds

bundling as an entry barrier in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to credibly defend both products without having to price low in each the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist although price discrimination provides a reason to bundle the gains are small compared with the gains from the entry deterrent effect i introduction in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to defend both products without having to price low in each while it is still possible to compete by offering a rival bundle a monopolist can significantly lower the potential profits of a one product entrant without having to engage in limit pricing prior to entry we also show that bundling continues to be an effective pricing tool even if entry deterrence fails or if there is already an existing one product rival a company with a monopoly in product a and a duopoly in product b makes higher profits by selling an a b bundle than by selling a and b independently leveraging market power from a into b and accepting some one product competition against the bundle is better than using the monopoly power in good a all by itself since bundling mitigates the impact of competition on the incumbent an entrant can expect the bundling strategy to persist even without any commitment the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist see stigler 1968 adams and yellen

the term structure of implied forward volatility recovery and informational content in the corn options market using a flexible method we develop the term structure of volatility implied by corn futures options with differing maturities and evaluate its ability to predict subsequent realized price volatility the implied forward volatilities anticipate realized volatility well for the nearby interval the implied forward volatilities provide unbiased forecasts and are superior to forecasts based on historical volatilities for more distant intervals early year options predict the direction and magnitude of future volatility changes about as well as a three year moving average and better than a naive forecast however later year options display less forecast power in part due to reduced trading activity

commercial real estate prices and stock market returns an international analysis the movement toward globalization of institutional investments requires an understanding of the historical relationship between international commercial real estate price changes and stock returns previous studies have focused on the time series of stock and real estate returns using data from a single country by necessity these studies examined returns and price changes over short intervals creating a bias when property values are smoothed from year to year this study examines the relation between stock returns and changes in property values and rents based on data from 17 countries although we find no relation between real estate values and rents and stock returns in the united states we find significant relations in a number of other countries when the data are pooled the relation between stock returns and both value changes and changes in rental rates is very strong

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

derivative use fund flows and investment manager performance abstract prior literature which examines the use of derivatives by investment managers does not discern between different types of derivative trading strategies this study is the first to examine and gather data on a particular type of derivative trading strategy undertaken by investment managers we examine the extent to which equity fund managers use index futures to manage fund flows and the effect this has on their alpha and market timing measures of performance our results show that funds that do not use derivatives exhibit lower returns and negative market timing skills when they experience fund flow the performance of funds that use derivatives however is independent of investor s liquidity demands in fact the unconditional performance of the average user fund is statistically equivalent to the performance of the average non user fund conditional on zero fund flow our results provide evidence that derivatives can be beneficial for mutual fund holders under certain conditions

performance evaluation of market timers theory and evidence previous investigators have shown that the sharpe measure of the performance of a managed portfolio may be flawed when the portfolio manager has market timing ability herein we develop the exact conditions under which the sharpe measure will completely and correctly order market timers according to ability the derived conditions are neces sary sufficient and observable we compare these derived conditions to empirical esti mates of actual market conditions and find that under typical market conditions the prac tice of using quarterly portfolio return data will frequently result in a failure of the sharpe measure to order timers according to ability we show however that such failures can be greatly reduced by more frequent sampling of managed portfolio returns

using the yield curve to time the stock market in the study reported here we extended the probit model for forecasting an economic recession by using the yield curve spread as the explanatory variable to forecast a bear stock market and tested market timing strategies based on the model we found that the value of the yield spread between the composite 10 year u s t bond yield and the three month t bill yield holds important information about the probability of a bear stock market we discuss our out of sample market timing tests at various probability screens of a forthcoming bear market in one month at a 50 percent probability screen our simulations show that for the period studied a market timer switching out of stocks t bills into t bills stocks one month before a bear bull stock market could have realized a compound annual return of 16 46 percent versus 14 17 percent from a stock only buy and hold strategy this result is economically significant

fuzzy multi criteria decision making for evaluating mutual fund strategies investors often need to evaluate investment strategies according to their own subjective preferences based upon various criteria this situation can be regarded as a fuzzy multiple criteria decision making fmcdm problem the purpose of this study is to propose an fmcdm approach with fuzzy integral this approach relaxes the independence assumption among criteria for the evaluation of the multiple criteria decision making mcdm problems which is oftentimes the basic assumption in applying hierarchical system for evaluating the strategies of selecting investment style we also employ triangular fuzzy numbers tfns to represent the decision makers subjective preferences on the criteria as well as for the criteria measurements to evaluate mutual funds investment style to achieve this objective first we employ factor analysis to extract four independent common factors from those criteria second we construct the evaluation frame using hierarchical system composed of four common factors with 16 evalu

anxious periods and bank lending we examine the lending behavior of banks during anxious periods the main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession we identify distinct periods of anxiety for consumers ceos firms and analysts subsequently we study the lending behavior of us banks during the anxious quarters from 1985 to 2010 using bank level data the results show that banks lending falls when consumers and analysts are anxious and this effect is more pronounced when banks hold a higher level of credit risk these effects are more pronounced in anxious periods that were followed by recessions and in these periods loan growth also responds negatively to the anxiety of ceos yet these effects are quite less prevalent in the period after 2001

research note on the profitability of firms in a differentiated industry in a model of vertical differentiation the principal concern of this paper is to identify sufficient conditions for producing a higher or lower quality good to be more profitable in terms of profits and profit margin our basic model considers a short run scenario where the firms quality levels are fixed and they engage in price competition here our results are three first we develop the notion of relative cost efficiency and show that its increasing or decreasing monotonicity in product quality implies that of firm profitability in equilibrium a firm s relative cost efficiency refers to its quality adjusted cost dis advantage relative to its immediate competitors for a given distribution of consumer tastes second selling a higher quality good is more profitable when absolute cost efficiency defined as the ratio between a firm s quality and unit cost is increasing in quality third we also establish a set of lower and upper bounds on each firm s profitability the basic model is then extended in two directions we examine unit cost functions that demonstrate monotone profitability even when both quality and price are endogenous variables we also show that the spirit of relative cost efficiency and its associated sufficient condition hold valid for a logconcave consumer distribution

luck versus forecast ability determinants of trader performance in futures markets statistical techniques are used to demonstrate that the fortunes of individual futures traders are determined by luck not forecast ability even though a large number of traders appear to exhibit significantly superior forecast ability the investigation strongly supports three conclusions there are fewer participants with significantly superior skill than expected if participants trade randomly there are more traders exhibiting no skill than expected if participants trade randomly and forecast ability is not correlated over time superior forecasters in the early period are only average forecasters in the later period therefore it is luck that determines trader performance copyright 1991 by university of chicago press

the structure of the investment management industry revisiting the new paradigm will a new paradigm of investment management lead to concentration of the money management business will the merger trend continue will fees decline and what accounts for product proliferation in an industry that struggles to deliver on the implied promise of its products answers some that may surprise to these questions and more

serial correlation and the fixed effects model this paper generalizes the durbin watson type statistics to test the ols residuals from the fixed effects model for serial independence also generalized are the tests proposed by sargan and bhargava for the hypothesis that the residuals form a random walk a method for efficient estimation of the parameters is also developed finally an earnings function is estimated using the michigan survey of income dynamics in order to illustrate the uses of the tests and the estimation procedures developed in this paper

land and stock prices in japan in late 1991 the total land value in japan was estimated at nearly 20 trillion this was more than 20 percent of the world s wealth or to put it in some other contexts about double the world s equity markets or half again as large as the world s bond markets japanese land was then valued at about five times that of the united states the land under the emperor s palace which is about three quarters of a square mile was estimated to be worth about the same as all the land in california or in canada real estate assets of japanese corporations grew by 2 8 trillion from 1986 to 1988 an increase in valuation roughly equal to the size of the japanese gross national product an equally dramatic rise in stock prices accompanied the rise in land prices at its peak in december 1989 the japanese stock market had a value of about 4 trillion which was about 44 percent of the world s equity market capitalization to put that figure in perspective the value of the equity on all the stock exchanges in the united states in august 1992 was less than 5 trillion but then from its peak in december 1989 to august 1992 the japanese stock market fell by over 60 percent various indices of speculative land values fell a similar amount meanwhile other land prices industrial commercial residential as measured by various indices fell 15 20 percent this paper discusses the rise of japanese stock and land prices in the past four decades and their dramatic decline in the early 1990s to what extent can

mutual fund volatility timing and management fees this paper shows that compensation incentives partly drive fund managers market volatility timing strategies larger incentive management fees lead to less counter cyclical or more pro cyclical volatility timing but fund styles or aggregate fund flows could also account for this relation therefore we control for them and find that the relation between fees and volatility timing still holds results show that less aggressive fund styles are associated with pro cyclical volatility timing and that volatility timing and flow timing are negatively related we also find that pro cyclical timing mostly improves funds average excess returns sharpe ratios and alphas

pitfalls in market timing test abstract henriksson and merton s market timing test suffers nontrivial size distortion when the observations are serially dependent sequences potential danger of finding spurious timing ability can be avoided by implementing a markov regression that includes the lagged dependent variables as additional explanatory variables

assessing and valuing the non linear structure of hedge fund returns several studies have put forward the non linear structure and option like features of returns associated with hedge fund strategies the authors provide a statistical methodology to test for such non linear features with the returns on any benchmark portfolio they estimate the portfolio of options that best approximates the returns of a given hedge fund account for this search in the statistical testing of the contingent claim features and test whether the identi ed non linear features have a positive value the authors nd that not all categories of funds exhibit signi cant non linearities and that only a few strategies as a group provide signi cant value to investors individual funds may still provide value in

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

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

a theory of demand shocks this paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity agents are hit by heterogeneous productivity shocks they observe their own productivity and a noisy public signal regarding aggregate productivity the public signal gives rise to noise shocks which have the features of aggregate demand shocks they increase output employment and inflation in the short run and have no effects in the long run numerical examples suggest that the model can generate sizable equilibrium dsge models of the business cycle include a large number of shocks to technol ogy monetary policy preferences etc but typically do not include expectational shocks as independent drivers of short run fluctuations 1 this paper explores the idea of expectation driven cycles looking at a model where technology determines equilibrium output in the long run and consumers receive noisy signals about technology in the short run the presence of noisy signals produces expectational errors this paper studies the role of these expectational errors in gener ating volatility at business cycle frequencies the model is based on two ingredients first consumers take time to recognize permanent changes in aggregate fundamentals although they may have good information on the current state of the individual firm or sector where they operate they have only limited information regarding the long run determinants of aggregate activity second consumers have access to public information that is relevant to estimate long run productivity this includes news about technological innovations publicly released macroeconomic and sectoral statistics financial market prices and public statements by policy makers however these signals provide only a noisy forecast of the long run effects of technological innovations this opens the door to noise shocks which induce consumers to temporarily overestimate or underestimate the productive capacity of the economy

market timing selectivity and mutual fund performance an empirical investigation this article empirically examines market timing and selectivity performance of a sample of mutual funds it uses a very simple regression technique to separate stock selection ability from timing ability this technique first suggested by treynor and mazuy and later refined by bhattacharya and pfleiderer uses a modified security market line approach to produce individual measures of timing and stock selection ability the inputs to the model are only the returns earned on the fund and those earned on the market portfolio the empirical results indicate that at the individual fund level there is some evidence of superior micro and macroforecasting ability on the part of the fund manager copyright 1990 by the university of chicago

uk unit trust performance 1980 1989 a passive time varying approach abstract this paper indirectly tests the efficient markets hypothesis by analysing the performance of 30 authorised unit trusts from 1980 through 1989 the risk return relationship of the funds is allowed to vary in a generalised manner thus allowing for passive structural change in underlying economic relationships our findings suggest that 21 of the 30 trusts in the sample were able to supply investment opportunities to the individual investor which were superior to a buy and hold strategy

stable classes of technical trading rules technical analysis includes a huge variety of trading rules this fact has always been a serious hindrance to the large number of market efficiency studies implemented either to demonstrate the profitability of market beating systems or to deny their operational feasibility for evident reasons it is practically impossible and theoretically weak to systematically analyse the entire body of all trading rules we therefore propose a novel method to form natural classes of trading rules which are found to be robust to changing market scenarios in particular groups are formed adopting a similarity measure based on the investing signals of the trading rules our clustering methodology adopts a markov chain bootstrapping technique to generate differentiated scenarios preserving volume and price joint distributional features an application is developed on a sample of 674 trading rules results show that six groups here identified as trading styles are sufficient to explain the large portion of the investing

a reexamination of the market timing and security selection performance of mutual funds an extended and correctly specified version of the treynor mazuy tm model is used to examine the market timing and stock selection abilities of domestic equity mutual funds this extended model controls for the inclusion of non s p 500 assets in mutual fund portfolios we document positive and significant market timing abilities for 633 mutual funds during the 1984 94 period this finding is in sharp contrast to the negative market timing abilities found when using the original tm model which does not control for non s p 500 assets security selection abilities are significantly positive and cross sectional correlations between market timing and selectivity are significantly negative the monotonic correlation between turnover and market timing is positive and that between turnover and selectivity is negative neither of these findings is evident with the original tm model or with traditional linear parametric measures of correlation

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