Market Frictions and the Efficiency of Capital Allocation

The following dissertation contains two unique empirical studies that contribute to the overall literature in the field of Financial Economics in the areas of mutual fund investing and financial intermediation and regulation. The first Chapter, entitled “The Impact of Macroeconomic Stress on the U.S. Financial Sector”, examines the relative impact of macroeconomic stress on financial and non-financial U.S. firms. Empirical results show that macroeconomic shocks appear to have a larger impact on financial firms. Additionally, the sensitivity of financial firms to macroeconomic events can be traced to the influence of non-depository institutions, or “shadow banks”, like finance and investment companies, which are less regulated than depository institutions. The results coincide with several trends in the financial sector including increased competition, complexity and interconnectedness and highlight the need for governance mechanisms that account for the risks associated with these factors. The second chapter, entitled “Partial Adjustment Towards Equilibrium Mutual Fund Allocations: Evidence from U.S.-based Equity Mutual Funds”, examines the relative efficiency of equity mutual funds in terms of speed of portfolio adjustment by applying a partial adjustment model. Empirical results show that mutual fund managers are able and willing to quickly adjust their portfolios when results have been sub-optimal, implying that the cost of persistent poor performance is perceived as being high. Managers can offset about 106 percent of the deviation within one period. Additionally, results show that funds that typically engage in the costly production of specialized information, like emerging market and sector funds have more efficient speeds of portfolio adjustment than more passive funds, like market index funds. The results imply that actively managed funds may have efficiency advantages that have been previously ignored in the empirical literature

Market Frictions and the Efficiency of Capital Allocation

The following dissertation contains two unique empirical studies that contribute to the overall literature in the field of Financial Economics in the areas of mutual fund investing and financial intermediation and regulation. The first Chapter, entitled “The Impact of Macroeconomic Stress on the U.S. Financial Sector”, examines the relative impact of macroeconomic stress on financial and non-financial U.S. firms. Empirical results show that macroeconomic shocks appear to have a larger impact on financial firms. Additionally, the sensitivity of financial firms to macroeconomic events can be traced to the influence of non-depository institutions, or “shadow banks”, like finance and investment companies, which are less regulated than depository institutions. The results coincide with several trends in the financial sector including increased competition, complexity and interconnectedness and highlight the need for governance mechanisms that account for the risks associated with these factors. The second chapter, entitled “Partial Adjustment Towards Equilibrium Mutual Fund Allocations: Evidence from U.S.-based Equity Mutual Funds”, examines the relative efficiency of equity mutual funds in terms of speed of portfolio adjustment by applying a partial adjustment model. Empirical results show that mutual fund managers are able and willing to quickly adjust their portfolios when results have been sub-optimal, implying that the cost of persistent poor performance is perceived as being high. Managers can offset about 106 percent of the deviation within one period. Additionally, results show that funds that typically engage in the costly production of specialized information, like emerging market and sector funds have more efficient speeds of portfolio adjustment than more passive funds, like market index funds. The results imply that actively managed funds may have efficiency advantages that have been previously ignored in the empirical literature

Essays on mutual fund underperformance

This thesis consists of three essays that study mutual fund manager abilities and investment performance. Extant research suggests that mutual fund managers, as a representative group of professional investors, fail to outperform passive benchmarks. My thesis explores potential sources of fund manager underperformance. Specifically, it investigates whether fund managers have "bad" skills that persistently affect fund performance and, in addition, sheds new light on mutual fund underperformance by investigating the prevalence of behavioural biases among fund managers. My first empirical study examines whether mutual fund managers possess distinct trading skills. By decomposing aggregate characteristic-timing performance into buying and selling components, I show that on average mutual fund managers exhibit positive characteristic-timing ability when buying stocks but negative characteristic-timing ability when selling stocks. Further persistence tests demonstrate that these differential trading skills are not merely due to chance: fund managers who exhibit superior characteristic-timing performance when buying stocks continue performing buying tasks well, while those who were poor performers in selling tend to underperform in the selling domain in the future. These results suggest that the lack of evidence of timing ability in the literature masks the distinct trading abilities that fund managers really possess. Moreover, using changes in portfolio style along size, book-to-market, and momentum dimensions (i.e., active style drift) as a proxy for strength of conviction, my analysis reveals an inverted U-shaped relationship between fund manager conviction and subsequent characteristic-timing performance. In particular, when fund managers engage aggressively in active style drift, their poor selling ability is overwhelming, leading to negative aggregate performance. My second study advances my investigation of fund performance and trading skills by considering the fact that fund managers are often forced to trade in response to investor flows. I find strong support for the hypothesis that the liquidity provision imposes significant indirect trading costs on mutual funds. Fund managers exhibit negative characteristic-timing performance only when they experience significant fund inflows. By conditioning fund trades on the direction and magnitude of fund flows, my results are consistent with the theoretical predictions that liquidity-driven trades underperform valuation-motivated trades. In particular, fund managers making purely valuation-motivated purchases generate significant characteristic-timing performance but are not able to do so when compelled to work off excess cash from investor inflows. Fund managers are not able to produce characteristic-timing returns from their selling decisions, even when they are highly motivated by valuation beliefs. Further results reveal that fund managers who possess superior selling ability are also significantly better at buying stocks than the remaining funds and as a result, these fund managers exhibit significant higher aggregate characteristic-timing returns. Strikingly, fund managers who appear to buy stocks well are not able to outperform other funds when selling stocks and they exhibit no significant aggregate performance. Overall, these results highlight and reinforce the insight that fund managers have positive buying skill and negative selling skill. My final empirical study explores the effect of overconfidence on actively managed equity mutual fund managers. Using the sum of absolute deviations from the fund’s benchmark index (i.e., Active Share) as a proxy for confidence level, my results show that fund managers tend to boost their confidence after outstanding past performance: they are more likely to increase Active Share and also choose a much higher Active Share level. Such bias is more pronounced among solo-managed funds than team-managed funds. More importantly, I uncover an inverted U-shaped relationship between confidence level and subsequent performance. In particular, excessive overconfidence, as reflected in an extremely high level of Active Share, is associated with diminished future fund performance, as well as more extreme performance outcomes and greater performance dispersion. I further document irrational investor reaction to fund manager overconfidence. There is a marked bonus for good performance by overconfident managers, as rewarded by higher fund inflows, while there is no pronounced penalty for poor performance, compared to other funds with comparable performance. Investors are not averse to overconfident fund managers even if they lose them money

Critical realism: the gendering of what we know

This paper will attempt to explicate the contributory processes of gendering that are operant at a macro level of analysis. Specifically, we will focus on the academy in general, the managerial academy or business school in particular, and their roles in the production and diffusion of gendered knowledge in organizations. We will use the modal lenses of Critical Realism to show how much of the academy is unaware of their contribution to these gendering processes

Intermodal transportation of dangerous goods: a special case

Intermodal Transportation has sustained a promising growth over the past two decades and continues to be one of the rapidly growing segments of the transportation industry. Intermodal transportation is being increasing used to move dangerous goods. In this work we present an optimization model for planning and managing intermodal shipments

The state of qualitative research in the field of public relations

This paper provides a review of the literature on the state of qualitative research in the field of public relations. It suggests that although quantitative methodologies are prominent, there is a call to action for the profession to shift to qualitative methodologies supported through theoretical paradigms relate d to social science research. This paper will evaluate the state of qualitative research and the methodologies being practiced by researchers and public relations professionals

Determinants and consequences of satisfaction with restaurant services

The purpose of the present study is to empirically investigate the determinants and consequences of consumers’ satisfaction with restaurant services. A total of 121 undergraduate business students participated in this study. We found that perceived service quality had a significant impact on emotions and satisfaction. Additionally, emotions significantly affect satisfaction, which in turn, had a significant impact on behavioural intentions. Restaurant managers should monitor customers’ perceived service quality and make sure that it conveys positive emotions and reduces negative emotions in order to maximize customers’ satisfaction

Essays in factor-based investing

My thesis explores three questions in factor-based investing. In the first chapter, I study the correlation risk in trading stock market anomalies. I propose a simple time-series risk measure in trading stock market anomalies, CoAnomaly, the time-varying average pairwise correlation among 34 anomalies, which helps to explain both the time-series and the cross-sectional anomaly return patterns. Since correlations among underlying assets determine the portfolio variance, CoAnomaly is an important state variable for arbitrageurs who hold diversified portfolios of anomalies to boost their performance. Empirically, I show that, first, CoAnomaly is persistent and forecasts long-run aggregate volatility of the diversified anomaly portfolio. Second, CoAnomaly positively predicts future average anomaly returns in the time series. Third, in the cross-section of these 34 anomaly portfolios, CoAnomaly carries a negative price of risk. In the second chapter, instead of studying multiple anomalies in a portfolio, I focus on one specific anomaly, momentum. I find that the momentum spread negatively predicts momentum returns in the long-term, but not in the following month. I further decompose the momentum spread into the spread of young or old momentum stocks based on how long the stock has been identified as a momentum stock. I show that the negative predictability is mainly driven by the old momentum spread. As these old momentum stocks are more likely to be exploited by arbitrageurs, these findings suggest that momentum is amplified by arbitrage activity and excessive arbitrage destabilizes the asset prices and generates strong reversals. In the third chapter, I revisit the robust diversification of factor investing and study the intertemporal consideration of an anomaly investor. Motivated by Campbell et al. (2017), I use vector autoregressions (VAR) and estimate an intertemporal CAPM with stochastic volatility for market-neutral investing with the focus on a portfolio of 34 anomalies. Interestingly, based on my estimation, only the correlation-induced volatility news carries a significant risk premium, which echos my findings in the first chapter

Essays on microfinance and poverty dynamics

Microfinance celebrates 40 years of existence with an ever wider popularity in the community of development practitioners. It is one of the cornerstones of the newly designed Sustainable Development Goals. But popularity does not mean success. To this day, the actual empirical evidence on the welfare impacts of microfinance programs are mixed. Using panel data from Bangladesh, this thesis seeks to address three major gaps in the literature.Impact evaluation studies typically focus on mean population outcomes. Chapter 2 makes use of quantile regression techniques in order to investigate potential distributional impacts of microfinance programs. There is compelling evidence that if microfinance benefits borrowers, the impacts are not the same for everyone. Such impact heterogeneity can have important welfare consequences.Chapter 3 investigates whether spillover effects from microfinance programs exist, which could benefit the community as a whole on top of direct beneficiaries. Afterproviding a new set of direct impact estimates that corroborate previous findings, estimations suggest there are potentially consumption gains to non-borrowers who live in villages where microfinance is accessible. A linear social interactions model succeeds in characterising spillover effects on consumption and on boys schooling as stemming from peer endogenous effects.Chapter 4 looks into the benefits of microfinance in helping the poor deal with vulnerability, another dimension of welfare that relates to the ability to insure against risks. A measure of vulnerability as expected poverty is constructed from cross-sections of data directly. After seven years went by between the surveys borrowers, who were by far worse off than non borrowers in their ability to face idiosyncratic shocks, do at least as well as non-borrowers. Empirical evidence suggests that households who borrowed are less likely to be considered as vulnerable

Working with the Revenue code - 1977

https://egrove.olemiss.edu/aicpa_guides/2770/thumbnail.jp