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Russ Wermers - One of the best experts on this subject based on the ideXlab platform.
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seasonal asset allocation evidence from Mutual Fund flows
Journal of Financial and Quantitative Analysis, 2017Co-Authors: Mark J Kamstra, Lisa A Kramer, Maurice D Levi, Russ WermersAbstract:Over the past 30 years, Mutual Funds have become the dominant vehicle through which individual investors prepare for retirement via defined contribution plans. Further, money market Mutual Funds, which hold 2.7 trillion as of September 2013, are now a major part of the cash economy in the U.S. Accordingly, the flow of money to and from different Mutual Fund categories (e.g., equities vs. money Funds) increasingly reflects the sentiment or risk aversion of the general population. In this study, we analyze flows between different categories of Mutual Funds, and find strong evidence of a seasonality in risk aversion of individual investors. Specifically, we find that aggregate investor flow data reveals an investor preference for U.S. money market and government bond Mutual Funds in the autumn, and equity Funds in the spring, controlling for the influence of seasonality in past performance, advertising, liquidity needs, and capital gains overhang on Fund flows. This movement of large amounts of money between Fund categories is correlated with a proxy for variation in investor risk aversion across the seasons, consistent with investors’ revealed preferences for safer investments in the fall, and riskier investments in the spring. We find similar evidence in Canadian Mutual Fund flows, and in flows among Australian Funds, where the seasons are six months out of phase relative to Canada and the U.S. While prior evidence regarding the influence of seasonally changing risk aversion on financial markets relies on seasonal patterns in asset returns, we provide the first direct trade-related evidence.
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seasonal asset allocation evidence from Mutual Fund flows
Social Science Research Network, 2015Co-Authors: Mark J Kamstra, Lisa A Kramer, Maurice D Levi, Russ WermersAbstract:We analyze the flow of money between Mutual Fund categories, finding strong evidence of seasonality in investor risk aversion. Aggregate investor flow data reveal investor preference for safe Mutual Funds in autumn and risky Funds in spring. During September alone, outflows from equity Funds average $13 billion, controlling for previously documented flow determinants (e.g., capital-gain overhang). This movement of large amounts of money between Fund categories is correlated with seasonality in investor risk aversion, consistent with investors preferring safer (riskier) investments in autumn (spring). We find consistent evidence in Canada, and in Australia where seasons are offset by six months.
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Mutual Fund performance evaluation with active peer benchmarks
Journal of Financial Economics, 2014Co-Authors: David L Hunter, Eugene Kandel, Shmuel Kandel, Russ WermersAbstract:We propose a simple approach to account for commonalities in Mutual Fund strategies that relies solely on information on Fund returns and investment objectives. Our approach augments commonly used factor models with an additional benchmark that represents an equal investment in all same-category Funds, which we call an active peer benchmark (APB). We find that APBs substantially reduce the average time series correlation of residuals between individual Funds within a group when added to a four-factor equity model (or to a seven-factor fixed-income model). Importantly, adding this APB significantly improves the selection of Funds with future outperformance.
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analyst recommendations Mutual Fund herding and overreaction in stock prices
Management Science, 2014Co-Authors: Nerissa C Brown, Kelsey D Wei, Russ WermersAbstract:This paper documents that Mutual Funds “herd” trade together into stocks with consensus sell-side analyst upgrades, and herd out of stocks with consensus downgrades. This influence of analyst recommendation changes on Fund herding is stronger for downgrades, and among managers with greater career concerns. These findings indicate that career-concerned managers are incentivized to follow analyst information, and that managers have a greater tendency to herd on negative stock information, given the greater reputational and litigation risk of holding losing stocks. Furthermore, starting in the mid-1990s when aggregate Mutual Fund equity ownership is significantly higher, stocks traded by career-concerned herds of Fund managers in response to analyst recommendation changes experience a significant same-quarter price impact, followed by a sharp subsequent price reversal. Our evidence suggests that analyst recommendation revisions induce herding by career-concerned Fund managers, and that this type of trading has become price destabilizing with the increasing level of Mutual Fund ownership of stocks. This paper was accepted by Wei Jiang, finance.
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analyst recommendations Mutual Fund herding and overreaction in stock prices
2013Co-Authors: Nerissa C Brown, Kelsey D Wei, Russ WermersAbstract:This paper documents that Mutual Funds “herd” (trade together) into stocks with consensus sell-side analyst upgrades, and herd out of stocks with consensus downgrades. This influence of analyst revisions on Fund herding is stronger for downgrades, and among managers with greater career concerns. These findings indicate that career-concerned managers are incentivized to follow analyst information, and have a greater tendency to herd on negative stock information, given the greater reputational and litigation risk of holding losing stocks. Further, during the more recent period (when aggregate Mutual Fund equity ownership is significantly higher), stocks traded by career-concerned herds of Fund managers in response to analyst revisions experience a significant same-quarter price impact, followed by a sharp subsequent price reversal. Our evidence suggests that analyst recommendation revisions induce herding by career-concerned Fund managers, and that this type of trading has become price-destabilizing with the increasing level of Mutual Fund ownership of stocks.
William N Goetzmann - One of the best experts on this subject based on the ideXlab platform.
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investor sentiment in japanese and u s daily Mutual Fund flows
National Bureau of Economic Research, 2003Co-Authors: Stephen J Brown, William N Goetzmann, Takato Hiraki, Noriyoshi Shirishi, Masahiro WatanabeAbstract:We find evidence that is consistent with the hypothesis that daily Mutual Fund flows may be instruments for investor sentiment about the stock market. We use this finding to construct a new index of investor sentiment, and validate this index using data from both the United States and Japan. In both markets exposure to this factor is priced, and in the Japanese case, we document evidence of negative correlations between Bull' and Bear' domestic Funds. The flows to bear foreign Funds in Japan display some evidence of negative correlation to domestic and foreign equity Funds, suggesting that there is a foreign vs. domestic sentiment factor in Japan that does not appear in the contemporaneous U.S. data. By contrast, U.S. Mutual Fund investors appear to regard domestic and foreign equity Mutual Funds as economic substitutes.
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investor sentiment in japanese and u s daily Mutual Fund flows
Social Science Research Network, 2002Co-Authors: Stephen J Brown, William N Goetzmann, Takato Hiraki, Noriyoshi Shiraishi, Masahiro WatanabeAbstract:We find evidence that is consistent with the hypothesis that daily Mutual Fund flows may be instruments for investor sentiment about the stock market. We use this finding to construct a new index of investor sentiment, and validate this index using data from both the United States and Japan. In both markets exposure to this factor is priced, and in the Japanese case, we document evidence of negative correlations between "Bull" and "Bear" domestic Funds. The flows to bear foreign Funds in Japan display some evidence of negative correlation to foreign bull and equity Funds. They appear to be independent of domestic bull and bear Fund flows, suggesting that there is a foreign vs. domestic sentiment factor in Japan that does not appear in the contemporaneous U.S. data. By contrast, U.S. Mutual Fund investors appear to regard domestic and foreign equity Mutual Funds as economic complements.
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cognitive dissonance and Mutual Fund investors
Journal of Financial Research, 1997Co-Authors: William N Goetzmann, Nadav PelesAbstract:We present evidence from questionnaire responses of Mutual Fund investors about recollections of past Fund performance. We find that investor memories exhibit a positive bias, consistent with current psychological models. We find that the degree of bias is conditional upon previous investor choice, a phenomenon related to the well-known theory of cognitive dissonance. Psychological and economic frictions in the Mutual Fund industry are examined via a cross-sectional study of equity Mutual Funds. We find an unusually high frequency of poorly performing Funds, consistent with investor "inertia." We also examine the differential responses of investment dollars to past performance, controlling for supervisorship. These show that the effect is confined to the top quartile. We find little evidence that the response to poor performance is unusual.
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cognitive dissonance and Mutual Fund investors
Journal of Financial Research, 1997Co-Authors: William N Goetzmann, Nadav PelesAbstract:We present evidence from questionnaire responses of Mutual Fund investors about recollections of past Fund performance. We find that investor memories exhibit a positive bias, consistent with current psychological models. We find that the degree of bias is conditional upon previous investor choice, a phenomenon related to the well-known theory of cognitive dissonance. Psychological and economic frictions in the Mutual Fund industry are examined via a cross-sectional study of equity Mutual Funds. We find an unusually high frequency of poorly performing Funds, consistent with investor “inertia.” We also examine the differential responses of investment dollars to past performance, controlling for survivorship. These show that the effect is confined to the top quartile. We find little evidence that the response to poor performance is unusual.
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Mutual Fund styles
Social Science Research Network, 1996Co-Authors: Stephen J Brown, William N GoetzmannAbstract:We propose a new empirical approach to determination of Mutual Fund styles. This approach is simple to apply, yet it captures nonlinear patterns of returns that result from virtually all active portfolio management styles. We find that the largest equity Fund category, â¬SGrowthâ¬? typically breaks down into several styles that differ in composition and strategy. Our classification method identifies Fund groupings that are useful predictors of cross-sectional future performance, as well as past behavior. Not only are they superior to common classifications such as â¬SGrowthâ¬? or â¬SIncome,â¬? but they also outperform classifications based upon risk measures and analogue portfolios.
Yuehua Tang - One of the best experts on this subject based on the ideXlab platform.
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portfolio manager ownership and Mutual Fund risk taking
Management Science, 2019Co-Authors: Yuehua TangAbstract:This paper studies the effect of portfolio manager ownership (i.e., “skin in the game”) on Mutual Fund risk taking. Using holdings-based risk change measures that capture managers’ ex ante risk cho...
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portfolio manager ownership and Mutual Fund risk taking
Social Science Research Network, 2017Co-Authors: Yuehua TangAbstract:This paper studies the effect of portfolio manager ownership (i.e., skin in the game) on Mutual Fund risk-shifting behavior. Previous literature suggests that risk shifting can hurt Fund performance and impose costs on Fund investors. We find that portfolio manager ownership can mitigate managers’ incentive to engage in such risk-shifting behavior. In particular, using holdings-based risk-shifting measures, we find that portfolio manager ownership reduces both intra-year and across-year risk-shifting activities. Fund investors reward Funds with greater managerial ownership with more capital inflows. Overall, our evidence suggests that portfolio manager ownership serves as an incentive alignment mechanism and has important implications to Fund investors.
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portfolio manager compensation and Mutual Fund performance
Social Science Research Network, 2016Co-Authors: Yuehua Tang, Juanpedro GomezAbstract:We use a novel dataset to study the relation between individual portfolio manager compensation and Mutual Fund performance. Managers with explicit performance-based pay exhibit superior subsequent Fund performance, especially when investment advisors link pay to performance over a longer time period. In contrast, alternative compensation arrangements, such as fixed salary, assets-based pay, or advisor-profits-based pay are not associated with superior performance. Our tests further show that the positive relation between performance-based contracts and Fund performance is not driven by the selection of talented managers proxied by education background. Lastly, managers with performance-based pay engage less in risk-shifting activities.
Mingyi Hung - One of the best experts on this subject based on the ideXlab platform.
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the impact of mandatory ifrs adoption on foreign Mutual Fund ownership the role of comparability
Journal of Accounting and Economics, 2011Co-Authors: Mark L Defond, Xuesong Hu, Mingyi Hung, Siqi LiAbstract:Proponents of IFRS argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. We test this assertion by examining changes in foreign Mutual Fund investment in firms following mandatory IFRS adoption in the European Union in 2005. We measure improved comparability as a credible increase in uniformity, defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion, we find that foreign Mutual Fund ownership increases when mandatory IFRS adoption leads to improved comparability.
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the impact of mandatory ifrs adoption on foreign Mutual Fund ownership the role of comparability
Social Science Research Network, 2010Co-Authors: Mark L Defond, Mingyi HungAbstract:Proponents of International Financial Reporting Standards (IFRS) argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. Our study tests this assertion by examining the change in foreign Mutual Fund investment in firms that began using IFRS after its mandatory adoption in the European Union (EU) in 2005. We hypothesize that firms experience larger increases in foreign Mutual Fund ownership when there is a credible increase in uniformity from IFRS adoption. We define a credible increase in uniformity as a large increase in the number of industry peers using the same accounting standards in countries where IFRS is credibly implemented. Consistent with our hypothesis, we find that subsequent to mandatory IFRS adoption, the increase in foreign Mutual Fund investment is greater among the firms that experience relatively large increases in uniformity and are in countries with strong implementation credibility.
Mark L Defond - One of the best experts on this subject based on the ideXlab platform.
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the impact of mandatory ifrs adoption on foreign Mutual Fund ownership the role of comparability
Journal of Accounting and Economics, 2011Co-Authors: Mark L Defond, Xuesong Hu, Mingyi Hung, Siqi LiAbstract:Proponents of IFRS argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. We test this assertion by examining changes in foreign Mutual Fund investment in firms following mandatory IFRS adoption in the European Union in 2005. We measure improved comparability as a credible increase in uniformity, defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion, we find that foreign Mutual Fund ownership increases when mandatory IFRS adoption leads to improved comparability.
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the impact of mandatory ifrs adoption on foreign Mutual Fund ownership the role of comparability
Social Science Research Network, 2010Co-Authors: Mark L Defond, Mingyi HungAbstract:Proponents of International Financial Reporting Standards (IFRS) argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. Our study tests this assertion by examining the change in foreign Mutual Fund investment in firms that began using IFRS after its mandatory adoption in the European Union (EU) in 2005. We hypothesize that firms experience larger increases in foreign Mutual Fund ownership when there is a credible increase in uniformity from IFRS adoption. We define a credible increase in uniformity as a large increase in the number of industry peers using the same accounting standards in countries where IFRS is credibly implemented. Consistent with our hypothesis, we find that subsequent to mandatory IFRS adoption, the increase in foreign Mutual Fund investment is greater among the firms that experience relatively large increases in uniformity and are in countries with strong implementation credibility.
