Portfolio turnover activity and mutual fund performance

2018 ◽  
Vol 44 (3) ◽  
pp. 326-356 ◽  
Author(s):  
Claudia Champagne ◽  
Aymen Karoui ◽  
Saurin Patel
Keyword(s):  
Mutual Fund ◽  
Fund Performance ◽  
Content Type ◽  
Portfolio Holdings ◽  
Noisy Information ◽  
Panel Regressions ◽  
Size Number ◽  
Net Flows ◽  
The Relationship ◽  
Is Value

Purpose The purpose of this paper is to propose a new measure of portfolio activity, the modified turnover (MT), which represents the portion of the portfolio that the manager changes from one quarter to the next. Compared with the traditional turnover, the MT measure has a distinct interpretation, relies on portfolio holdings, includes the effects of flows and ignores the effects of offsetting trades. Design/methodology/approach Using quarterly holdings data, the authors examine the relationship between fund turnover, performance, and flows for a sample of 2,856 actively managed mutual funds over the period 1991-2012. The authors provide numerical examples to illustrate how the suggested measure, MT, is different from the traditional turnover measure. The authors use panel regressions, simple and double sorts to examine the predictability of performance. Findings The authors find evidence that high MT predicts lower performance. The comparison between the highest and lowest quintiles sorted based on MT reveals a difference of −2.41 percent in the annual risk-adjusted return. Furthermore, high MT predicts lower net flows. The authors also find that MT relates positively to other activeness measures while volatility, flows, size, number of stocks, and the expense ratio are significant determinants of MT. Overall, the results suggest that frequent churning of a portfolio is value destroying for investors and signals a manager’s lack of skill. Originality/value The authors offer a simple measure, namely, MT, for estimating the fraction of a portfolio that changes from one quarter to the next. Armed with this tool, the authors investigate whether funds deviate from their previous quarter’s holdings because of valuable or noisy information, and whether such signals are exploited by fund investors.

Mutual fund trading around mergers and fund performance

2019 ◽  
Vol 16 (1) ◽  
pp. 1-20
Author(s):  
Margarita Kaprielyan ◽  
Md Miran Hossain ◽  
Charles Armah Danso
Keyword(s):  
Mutual Fund ◽  
Predictive Power ◽  
Fund Performance ◽  
Wealth Creation ◽  
Publicly Traded ◽  
Public And Private ◽  
Content Type ◽  
Fund Managers ◽  
Portfolio Holdings ◽  
Subsequent Risk

Purpose The purpose of this paper is to investigate whether mutual funds (MFs) take positions in companies that subsequently engage in M&As and whether fund managers adjust portfolio holdings in the same direction as wealth creation from mergers. Further, the study is the first to examine the relation between active trading surrounding M&As and risk-adjusted performance in MFs. Design/methodology/approach The sample includes mergers conducted by publicly traded acquirers of public and private targets over 2003–2016. Several measures of MF managerial activeness in M&As are introduced: merger trading intensity (proportional change in fund’s holdings of M&A stocks), active merger weight (deviation of the fund’s actual weights in M&A stocks and value weights) and active merger trading (deviation of the fund’s actual weights in M&A stocks from the average weights in M&A stocks across the funds within the same Center for Research in Security Prices objective). Findings Fund managers who are more vested in the firms engaged in M&As and who are more active in their trades of M&A firms generate higher contemporaneous and subsequent risk-adjusted performance, indicative of managerial skill. Active M&A trading effect on performance is economically meaningful. Originality/value This is the first study to examine whether previously documented predictive power of active institutions regarding M&As’ profitability leads to higher risk-adjusted returns for MF investors. The study introduces several measures to gauge how actively fund managers trade companies engaged in M&As and contributes to the literature on MF managers’ ability to pick stocks.

Innovation, institutions and economic growth in sub-Saharan Africa – an IV estimation of a panel threshold model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Joseph Ato Forson ◽  
Rosemary Afrakomah Opoku ◽  
Michael Owusu Appiah ◽  
Evans Kyeremeh ◽  
Ibrahim Anyass Ahmed ◽  
...  
Keyword(s):  
Economic Growth ◽  
Developing Economies ◽  
Innovation Policy ◽  
Threshold Model ◽  
Sub Saharan Africa ◽  
Content Type ◽  
Panel Regressions ◽  
Sub Saharan ◽  
The Impact ◽  
The Relationship

PurposeThe significant impact of innovation in stimulating economic growth cannot be overemphasized, more importantly from policy perspective. For this reason, the relationship between innovation and economic growth in developing economies such as the ones in Africa has remained topical. Yet, innovation as a concept is multi-dimensional and cannot be measured by just one single variable. With hindsight of the traditional measures of innovation in literature, we augment it with the number of scientific journals published in the region to enrich this discourse.Design/methodology/approachWe focus on an approach that explores innovation policy qualitatively from various policy documents of selected countries in the region from three policy perspectives (i.e. institutional framework, financing and diffusion and interaction). We further investigate whether innovation as perceived differently is important for economic growth in 25 economies in sub-Saharan Africa over the period 1990–2016. Instrumental variable estimation of a threshold regression is used to capture the contributions of innovation as a multi-dimensional concept on economic growth, while dealing with endogeneity between the regressors and error term.FindingsThe results from both traditional panel regressions and IV panel threshold regressions show a positive relationship between innovation and economic growth, although the impact seems negligible. Institutional quality dampens innovation among low-regime economies, and the relation is persistent regardless of when the focus is on aggregate or decomposed institutional factors. The impact of innovation on economic growth in most regressions is robust to different dimensions of innovation. Yet, the coefficients of the innovation variables in the two regimes are quite dissimilar. While most countries in the region have offered financial support in the form of budgetary allocations to strengthen institutions, barriers to the design and implementation of innovation policies may be responsible for the sluggish contribution of innovation to the growth pattern of the region.Originality/valueSegregating economies of Africa into two distinct regimes based on a threshold of investment in education as a share of GDP in order to understand the relationship between innovation and economic growth is quite novel. This lends credence to the fact that innovation as a multifaceted concept does not take place by chance – it is carefully planned. We have enriched the discourse of innovation and thus helped in deepening understanding on this contentious subject.

Do “Good Guys” Finish Last? The Relationship between Morningstar Sustainability Ratings and Mutual Fund Performance

2019 ◽  
Keyword(s):  
Mutual Fund ◽  
Cash Flows ◽  
Fund Performance ◽  
Financial Benefit ◽  
Socially Responsible ◽  
Ongoing Debate ◽  
Strict Adherence ◽  
Responsible Investing ◽  
Investor Returns ◽  
The Relationship

Given the rapid growth of investment products focused on socially responsible investing (SRI), in March 2016, Morningstar began reporting standardized metrics to “grade” the sustainability (i.e., SRI) level of thousands of mutual funds. By analyzing this new metric, the authors aim to help clarify the ongoing debate surrounding whether SRI positively or negatively affects investor returns. They find that funds with high sustainability scores have about the same risk-adjusted returns (i.e., alphas) as other funds. Thus, SRI investors can apparently follow a social mandate without sacrificing financial performance, but also without garnering any incremental financial benefit as well. They find, however, that the vast majority of high sustainability funds are concentrated in the large-cap space, which implies that strict adherence to social criteria could inadvertently result in less diversified investor portfolios. They also find that funds with high Morningstar sustainability scores generally mimic those of self-proclaimed SRI funds, suggesting that the new metric opens up a larger pool of potential funds for investors focused on SRI. Lastly, they find that funds that specifically designate and market a social mandate experience more stable cash flows; therefore, the self-proclaimed mandate may be more beneficial for the fund company than it is for investors.

scholarly journals The impact of country-level and fund-level factors on mutual fund performance in Vietnam

2019 ◽  
Vol 21 (1) ◽  
pp. 42-56
Author(s):  
Hoa Thi Nguyen ◽  
Dung Thi Nguyet Nguyen
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Investment Decision ◽  
Political Stability ◽  
Fund Performance ◽  
Data Set ◽  
Policy Makers ◽  
Content Type ◽  
Country Level ◽  
The Impact

Purpose The purpose of this paper is to examine the determinants of mutual funds’ performance at both a country level and a fund level in Vietnam. Design/methodology/approach The different types of funds with more than three-year operation are selected to remove outliers of the stock market boom from 2015 to 2018. The data set includes 54 mutual funds operating during the period from 2008 until November 2018. Findings The research finds that there is a positive relationship between macroeconomics and mutual funds’ performance. Furthermore, country-level governance such as regulation effectiveness, political stability, economic growth and financial development has a positive correlation with mutual funds’ performance. However, the impact of fund-level factors is diverse with the no significant impact of board size on mutual fund’s performance, while passive funds perform better than active funds in Vietnam. Practical implications The research results suggest that investors should pay attention to the types of funds and operating expense when making an investment decision in mutual funds. There are some recommendations for both government policy-makers and the mutual fund industry that are likely to facilitate the development of this field in Vietnam. Originality/value The research contributes to the understanding of what are the factors that should be considered when investing in mutual funds.

scholarly journals Scale and Skill in Mutual Fund Management: Evidence from Norway

2020 ◽  
Vol 3 (4) ◽  
pp. 1-20
Author(s):  
Markus Snøve Høiberg
Keyword(s):  
Panel Data ◽  
Mutual Fund ◽  
Fund Performance ◽  
Mutual Fund Performance ◽  
Fund Management ◽  
Average Performance ◽  
Performance Benchmarks ◽  
Survivorship Bias ◽  
The Relationship ◽  
Relevant Factors

Using a sample free of survivorship bias and several risk-adjusted performance benchmarks to identify effects of scale on mutual fund performance in the Norwegian market, I find mixed evidence that both large and small funds underperform as against the middle-sized funds in the period 2005-2018. Controlling for relevant factors in panel data regressions, I find that, on average, performance worsens with an increase in size while giving support to initial findings of nonlinearity. The relationship is most robust after 2013 and seems to be affected by competition in the market as well as fund inflows. I do not find any empirical evidence to support the liquidity hypothesis.

scholarly journals Cash management and performance of index mutual funds

2020 ◽  
Vol 33 (3/4) ◽  
pp. 549-565
Author(s):  
Diego Víctor de Mingo-López ◽  
Juan Carlos Matallín-Sáez ◽  
Amparo Soler-Domínguez
Keyword(s):  
Stock Market ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Fund Performance ◽  
Cash Management ◽  
Stock Market Index ◽  
Index Funds ◽  
Content Type ◽  
Market Index ◽  
And Performance

PurposeThis study aims to assess the relationship between cash management and fund performance in index fund portfolios.Design/methodology/approachUsing a sample of 104 index mutual funds that track the Standard and Poor 500 stock market index from January 1999 to December 2016, the authors employ quintile portfolios and different regression models to assess the differences in risk-adjusted monthly returns experienced by index funds managing different cash levels in their portfolios. To ensure the robustness of the results, different sub-periods and market states are considered in the analyses as well as other exogenous factors and fund characteristics affecting the level of portfolio cash holdings and index fund performance.FindingsResults show that index funds holding higher levels of cash and cash equivalents performed significantly worse than their low-cash counterparts. This evidence remains even after considering different sub-periods and bullish and bearish market conditions and controlling for fund expenses and other variables that could drive this cash-performance relationship.Originality/valueThis study expands the extant literature analyzing cash management in the mutual fund industry. More specifically, the analyses focus on index fund portfolios that replicate a specific benchmark, given that their performance differences should not be related to the market evolution but to the factors derived from the fund management and other exogenous issues. These findings are of interest to managers and investors willing to improve their risk-adjusted returns while investing as diversified as a stock market index.

Herding in the mutual fund industry: evidence from Chile

2014 ◽  
Vol 27 (1) ◽  
pp. 10-29 ◽  
Author(s):  
Jaime F. Lavin ◽  
Nicolás S. Magner
Keyword(s):  
Mutual Funds ◽  
Behavioral Problems ◽  
Mutual Fund ◽  
International Markets ◽  
Herd Behavior ◽  
Information Efficiency ◽  
Content Type ◽  
Equity Mutual Funds ◽  
Panel Regressions ◽  
Fixed And Random Effects

Purpose The purpose of this paper is to identify elements of intentional herd behavior (HB), differentiating it from spurious, or unintentional HB. Design/methodology/approach Using a panel of 50 stocks belonging to 18 Chilean equity mutual funds between December 2002 and October 2009, with manually collected data regarding physical positions of monthly purchases and sales, the authors calculate the level of HB and, by applying panel regressions with fixed and random effects, analyze the factors that determine this behavior, classifying them as agency, information, efficiency and behavioral problems. Findings The research establishes that among Chilean equity mutual funds, there is a herding of 2.8 percent, implying that for 100 funds trading a certain stock, 53 go in the same direction and 47 in another. This effect increases during widespread market dips and when stocks become fashionable, attracting market attention. This behavior is not merely spurious, associated with variables that predict returns, but also has an intentional component, related to agency problems and information, and a behavioral component, related to investors’ biases and beliefs. Originality/value The paper is original because, despite existing evidence of herding in international markets, it has been little quantified or studied in emerging markets. In addition, the literature does not distinguish between spurious and intentional HB, nor does it test different hypotheses jointly to explain the phenomenon.

Mutual fund manager turnover: an empirical investigation of performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Avinash Ghalke ◽  
Shripad Kulkarni
Keyword(s):  
Mutual Fund ◽  
Emerging Market ◽  
Investment Strategy ◽  
Fund Performance ◽  
Fund Manager ◽  
Content Type ◽  
Fund Managers ◽  
Fund Families ◽  
Study Methodology ◽  
Factor Alpha

PurposeWhen a fund manager leaves, the investment strategy of the fund changes or remains the same. The departing fund manager's resignation is either forced or voluntary. The study investigates the relationship between the portfolio manager's transition and the fund's investment strategy and how the change affects the mutual fund returns in the subsequent period.Design/methodology/approachThe authors examine 148 fund manager changes in India between April 2005–March 2018 using three performance measures: abnormal return (fund return minus benchmark return), Jensen's alpha and Carhart four-factor alpha. The analysis includes an event study methodology, followed by a two-step Fama–MacBeth regression approach.FindingsContrary to the previous studies conducted in the developed markets, the authors find that fund performance improves irrespective of whether the fund manager change is forced or voluntary. The outperformance after the fund manager's exit is significant for funds belonging to the larger fund families.Originality/valueIn the context of investment management, the authors provide a conceptual framework to understand the effect of fund manager exit on mutual fund performance. The authors substantiate their arguments with empirical evidence. To the best of the authors' understanding, this is the first research to examine the effect of changing mutual fund managers in an emerging market setting.

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