scholarly journals Risk and Performance of European Green and Conventional Funds

2021 ◽  
Vol 13 (8) ◽  
pp. 4226
Author(s):  
Tiago Gonçalves ◽  
Diego Pimentel ◽  
Cristina Gaio
Keyword(s):  
Business Cycle ◽  
Mutual Funds ◽  
Factor Model ◽  
World Market ◽  
The European Union ◽  
Single Factor ◽  
Multifactor Models ◽  
Multifactor Model ◽  
Negative Results ◽  
The Business Cycle

This paper analyzes how the risk-adjusted returns of green funds compare to those of conventional funds, between the years 2005 and 2020 for the European Union countries. Additionally, we tested how the performance of green funds correlates to the business cycle, subdividing their performance through expansionary and recessionary times. The findings are summarized as follows: our regression results demonstrated green and conventional funds exhibiting negative abnormal adjusted-returns against the developed world market benchmark for the single-factor and multifactor models. For the European market benchmark, we found environmental mutual funds presenting a positive performance for both models and conventional funds displaying negative results for the single-factor model and positive results for the multifactor model. The factor loadings for green funds indicated a negative load on momentum, book-to-market (HML) and size (SMB) factors, revealing a higher exposure to big and value companies. Subsampling per business cycle exhibited green mutual funds providing higher risk-adjusted returns to investors during crisis periods and mixed results for the non-crisis periods.

The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds

2017 ◽  
Vol 13 (3) ◽  
pp. 513-528 ◽  
Author(s):  
Karen Paul
Keyword(s):  
Business Cycle ◽  
Financial Performance ◽  
Mutual Funds ◽  
Factor Model ◽  
Social Performance ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investing ◽  
Market Return ◽  
Three Factor

Purpose This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER). Design/methodology/approach A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies. Findings The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion. Research limitations/implications These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction. Practical implications These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance. Social implications This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction. Originality/value Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.

ICAPM and the Accruals Anomaly

2020 ◽  
Vol 10 (03) ◽  
pp. 2050014 ◽  
Author(s):  
Hui Guo ◽  
Paulo Maio
Keyword(s):  
Business Cycle ◽  
Explanatory Power ◽  
Risk Premia ◽  
Key Factors ◽  
Baseline Model ◽  
Cross Sectional ◽  
Multifactor Models ◽  
Accruals Anomaly ◽  
The Business Cycle

We propose new multifactor models to explain the accruals anomaly. Our baseline model represents an application of Merton’s ICAPM in which the key factors represent (innovations on) the term and small-value spreads. The model shows large explanatory power for cross-sectional risking premia associated with three accruals portfolio groups. A scaled version of the model shows better performance, suggesting that accruals risk premia are related with the business cycle. Both models compare favorably with popular multifactor models used in the literature, and also perform well in pricing other important anomalies. The risk price estimates of the hedging factors are consistent with the ICAPM framework.

The Dividend Term Structure

2019 ◽  
Vol 55 (3) ◽  
pp. 829-867 ◽  
Author(s):  
Jac Kragt ◽  
Frank de Jong ◽  
Joost Driessen
Keyword(s):  
Business Cycle ◽  
Term Structure ◽  
Factor Model ◽  
Market Returns ◽  
Short Term ◽  
Latent Factors ◽  
Stock Market Returns ◽  
Financial Variables ◽  
Limited Degree ◽  
The Business Cycle

We estimate a model for the term structure of discounted risk-adjusted dividend growth using prices of dividend futures for the Eurostoxx 50. A 2-factor model capturing short-term mean reversion within a year and a medium-term component reverting at the business-cycle horizon gives an excellent fit of these prices. Hence, investors update the valuation of dividends beyond the business cycle only to a limited degree. The 2-factor model, estimated on dividend futures data only, explains a large part of observed daily stock market returns. We also show that the 2 latent factors are related to various economic and financial variables.

Investment styles and the multifactor analysis of market timing skill

2017 ◽  
Vol 13 (1) ◽  
pp. 21-35
Author(s):  
Jarkko Peltomäki
Keyword(s):  
Factor Model ◽  
Market Timing ◽  
Investment Strategy ◽  
Investment Strategies ◽  
Analysis Model ◽  
Content Type ◽  
Multifactor Models ◽  
Multifactor Model ◽  
Investment Style ◽  
Investment Styles

Purpose The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a multifactor model does not suit all investment styles equally well. If the factors of the analysis model do not span the portfolio holdings of a fund with less conventional investment strategy, the use of a multifactor model may even deteriorate the overall inference in measuring the market timing skill of a large sample of funds. Design/methodology/approach This study investigates the limitations of multifactor models in the analysis of market timing skill by applying the traditional Treynor-Mazuy and Henriksson-Merton analysis models of market timing skill using a set of “placebo” funds which are “natural” passive market timers. Findings The results of the study show that the incorporation of the Carhart four-factor model into the analysis of market timing skill considerably reduces the percentage of significant market timing results. But, as expected, the reduction of bias is not equal for different investment styles, and it works best when the factors of the analysis model are related to the investment style of the placebo portfolio. Practical implications This style-related limitation of multifactor models in the analysis of market timing skill may result in detecting funds with less conventional investment strategies as market timers since the factors used in the analysis are not likely to span their investment styles. Originality/value This study shows that the use of a multifactor model may lead to inferring passive market timers with less conventional investment styles as market timers. In addition, the findings of the study leave option replication approaches as more preferable bias corrections than multifactor extensions.

scholarly journals Mutual Fund Performance Persistence and Competition: Pakistan’s Open Ended Mutual Fund Performance Analysis

2021 ◽  
Vol 5 (2) ◽  
pp. 165-176
Author(s):  
Yasir Khan ◽  
Dr. Saima Batool ◽  
Mukharif Shah ◽  
Mukharif Shah
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Factor Model ◽  
Stock Exchange ◽  
Fund Performance ◽  
Special Focus ◽  
Size Factor ◽  
Mutual Fund Performance ◽  
Multifactor Models ◽  
Market Factors

Mutual Funds through its professional managers enable small investors to enjoy benefits of capital market with small amount. This study with special focus on Pakistani Mutual Fund industry, tests the suitability of traditional measures and multifactor, asset pricing models on the Mutual Fund performance. Owing to rareness of the applicability of the multifactor models in comparison to traditional measures, in evaluating Mutual Fund performance in modern day Pakistani research, the study uses CAPM, Fama French, Carhart models in the performance evaluation of Pakistan Mutual Fund. The data of 100 open-end Mutual Funds, for the period 2005 to 2017 was collected from Mutual Fund Association of Pakistan; while the risk free rates data was collected from State Bank of Pakistan and Stock data from Pakistan Stock Exchange for predicting the results, Ratio analysis, CAPM, Fama French-3 Factor and Carhart-4 factor model were used to understand its suitability. The results demonstrated that application of CAPM, affect market factors of majority of the portfolios.Where as in other two models (Fama French, Carhart) the majority of the portfolios are insignificantly affected by the size factor, value factor and Momentum factor. The Gibbon Rose Shanken unveils the suitability of the best model and justify CAPM as the better model among the three competing models in evaluate on theMutual Fund performance in Pakistan. The study has certain implications for the managers of assets management companies as well as useful for the investors in knowing which funds perform better and which kind of funds are ideal for investment.

scholarly journals The Business Cycle And The Portfolio Composition Of Mutual Funds

2020 ◽  
Vol 4 (2) ◽  
pp. 5-13
Author(s):  
Halil D. Kaya ◽  
Julia S. Kwok
Keyword(s):  
Business Cycle ◽  
Mutual Funds ◽  
Investment Strategy ◽  
Nonparametric Tests ◽  
The Other ◽  
Common Stocks ◽  
Business Condition ◽  
The Business Cycle ◽  
Fund Portfolio ◽  
The Relationship

This paper summarizes the arguments and counterarguments within the scientific discussion on the issue of mutual funds’ composition across the business cycle. The main purpose of the research is to determine whether mutual funds alter their investments across the business cycle. Systematization of the literary sources and approaches for solving the problem of the relationship between the business cycle and the composition of mutual funds indicates that five-star rated mutual funds may have an investment strategy that is different from lower-rated funds. Investigation of the topic of the relationship between the business cycle and composition of mutual funds in the paper is carried out in the following logical sequence: First, we classified each quarter as an “improving” or a “worsening” business condition period based on the Aruoba-Diebold-Scotti Business Conditions Index. As a result, we had seven “improving” and seven “worsening” business condition periods during our sample period. Then, we compared each star group (one-star to five-star) investments in common stocks, preferred stocks, convertible bonds, warrants, corporate bonds, municipal bonds, government bonds, other securities, and cash across the “improving” versus the “worsening” periods. The methodological tools utilized in this research were nonparametric tests. The objects of the research are the mutual funds listed in the CRSP quarterly mutual funds dataset for the 2003-2006 period. The paper presents the results of empirical analysis for these mutual funds, which showed that five-star funds tend to have a different strategy when compared to lower-rated funds. The research empirically confirms and theoretically proves that the five-star funds tend to invest more in riskier assets and they tend to better adjust to the conditions (i.e. invest more in common stocks and less in bonds in improving periods) when compared to the other groups. This explains their success: higher NAVs compared to the other groups and higher star ratings. On the other hand, our results show that the lower-rated funds do not adjust their investments in main asset classes like stock and bonds during “improving” versus “worsening” business condition periods. Overall, our results indicate that mutual funds’ star ratings and NAVs are linked to these funds’ success in their adaptation to the macro-economic environment. The results of the research can be useful for investment firms or individual investors that consider investing in U.S. mutual funds. Keywords: mutual fund, portfolio, business cycle, recession, net asset value.

Does Unemployment Cause the Death Rate Peak in Each Business Cycle? A Multifactor Model of Death Rate Change

1977 ◽  
Vol 7 (4) ◽  
pp. 625-662 ◽  
Author(s):  
Joseph Eyer
Keyword(s):  
Time Series ◽  
Business Cycle ◽  
Death Rate ◽  
Social Relationship ◽  
Causal Factors ◽  
Multifactor Model ◽  
Cycle Variation ◽  
Rate Fluctuation ◽  
Natural Time ◽  
The Business Cycle

Natural time series and prospective studies are combined to determine the contribution of many causal factors to the business cycle variation of the death rate. The variation of housing and nutrition together accounts for roughly a tenth of the death rate fluctuation. Drug consumption accounts for about one-sixth, with 11 percent of the total variation due to alcohol and 6 percent due to cigarette smoking. Social relationship changes, both as sources of stress and as means of relief, account for the greatest part (72 percent) of the business cycle variation of the death rate.

Business cycle and investment flows of retail and institutional mutual funds

2017 ◽  
Vol 13 (5) ◽  
pp. 498-520 ◽  
Author(s):  
Galla Salganik-Shoshan
Keyword(s):  
Risk Factors ◽  
Business Cycle ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Institutional Investors ◽  
Flow Patterns ◽  
Content Type ◽  
The Business Cycle ◽  
Systematic Risk Factors ◽  
Fund Investment

Purpose The purpose of this paper is to investigate the dynamics of mutual fund investment flows across the business cycle. To account for the differences in the flow patterns of funds catered for institutional investors and those focusing on retail investors, the author conducts this investigation separately for flows of institutional and retail funds. Design/methodology/approach The author uses the sample of US equity mutual funds for the period between 1999 and 2012. For the samples of each type of fund, the author performs separate analyses for expansion and recession periods. Following Sirri and Tufano (1998), the author implements the Fama MacBeth (1973) approach. Findings The author finds that flow patterns of both fund types vary across the business cycle. For example, the results reveal that during bad times, institutional investors demonstrate weaker return-chasing behavior, while paying higher attention to Jensen’s α, than during good times. In addition, the author reports results on the effect of fund exposure to various systematic risk factors. For instance, the author observes that during economic downturns, investors of both fund types tend to punish managers with higher market exposure. During expansions, the fund’s market exposure positively affects flows of institutional funds, while its effect on the flows of retail funds remains negative. Originality/value To the best of the author’s knowledge, this is the first study that investigates mutual fund investment flow patterns across the business cycle, while simultaneously accounting for differences in flow patterns between retail and institutional funds. A further contribution of this paper is that it explores the previously overlooked relationships between fund flows and their exposure to various systematic risk factors.

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