Liquidity risk and the performance of UK mutual funds

We examine the role of liquidity risk, both as a stock characteristic as well as systematic liquidity risk, in UK mutual fund performance for the first time. Using four alternative measures of stock liquidity we extract principal components across stocks in order to construct systematic or market liquidity factors. We find that on average UK mutual funds are tilted towards liquid stocks (except for small stock funds as might be expected) but that, counter-intuitively, liquidity as a stock characteristic is positively priced in the cross-section of fund performance. We find that systematic liquidity risk is positively priced in the cross-section of fund performance. Overall, our results reveal a strong role for stock liquidity level and systematic liquidity risk in fund performance evaluation models

Analysis of Mutual Fund Investment Performance in the Ability to Regulate Higher Liquidity Increases in Indonesia

One indication of inclusive liquidity or vice versa is to detect investment patterns. The research method is descriptive-quantitative. The population taken is mutual funds that are selected based on the best return in 2022 and those that are publicly published in the Financial Services Authority (OJK). Following are the results of an analysis of mutual fund investment performance in the ability to regulate a higher liquidity increase in Indonesia in 2022-2023. Fixed Income Mutual Funds: Syailendra Premium mutual funds show good performance in generating relatively stable returns. However, the Trimegah Fixed Income Plan mutual fund has a poor performance with higher volatility and lower returns. Index Funds: BNP Paribas Sri Kehati Mutual Funds show good performance with high returns and controlled volatility. The Allianz SRI KEHATI Index Fund mutual fund also performed well. However, Danareksa Index Syariah Mutual Funds showed poor performance and high risk in that period. Equity Funds: Schroder Dana Prestasi Plus mutual funds provide good returns with more controlled risk compared to stock market indices as a whole. The Sucorinvest Equity Fund mutual funds show poor performance with negative returns. Money Market Mutual Funds: Indonesian Sharia Money Market Major Mutual Funds can be a minimal choice. Likewise with the Sucorinvest Sharia Money Market Fund mutual funds. So in general terms, Index Funds and Money Market Mutual Funds show better performance than Fixed Income Mutual Funds and Mutual Funds in general

Two essays on mutual fund performance

Title from PDF of title page (University of Missouri--Columbia, viewed on May 15, 2013).The entire thesis text is included in the research.pdf file; the official abstract appears in the short.pdf file; a non-technical public abstract appears in the public.pdf file.Dissertation advisor: Dr. Xuemin (Sterling) YanIncludes bibliographical references.Vita.Ph. D. University of Missouri--Columbia 2012."May 2012"In these two essays, I examine the relation between mutual fund characteristics and fund performance. In the first essay, I test the impact of liquidity and liquidity risk on mutual fund returns. I find that equity funds with the most illiquid holdings outperform those with the most liquid holdings by as much as 4.40 percent annually. Funds with high liquidity beta only marginally outperform those with low liquidity beta on average. However, this outperformance is significantly stronger after excluding periods of extreme market illiquidity. Testing the liquidity and liquidity risk effects jointly reveals that both independently positively influence fund returns. In the second essay, I test the relation between fund fees and fund performance. Theory suggests that mutual fund fees should be positively related to before-fee returns (Berk and Green (2004)), while recent empirical work documents a negative relation (Gil-Bazo and Ruiz-Verdu (2009)). I find that the previously identified negative relation is not robust to alternative empirical specifications. Portfolio sorting and regression analysis with controls for fund characteristics find a positive relation between before-fee returns and expense ratios. I also find a positive relation between before-fee returns and management fees, the fee used to compensate fund managers. Extending the analysis to proxies for manager skill, I find a positive relation between fees and both trading skill and active share of holdings.Includes bibliographical reference

Consumer reaction on tumbling funds - Evidence from retail fund outflows during the financial crisis 2007/2008

Contrary to the findings reported in some of the extant literature, our study indicates that over the past few years a change in investors’ behavior patterns means that investment decisions are made at short notice, and that shares are redeemed in a discriminatory manner when funds perform poorly. By using a data assembled from 1672 retail funds in Germany over the period March 2008 to April 2010, we are able to show that in general, both the prior fund performance and prior net redemptions have a statistically significant influence on fund outflows. Moreover, there are indications that in recent crises situations that have resulted in the withdrawal of shares investors react fast to market signals. Our findings will also highlight areas in which policy-makers, regulatory authorities and the fund industry should establish a strong regulatory framework to prevent liquidity shortages of retail funds.Liquidity risk, financial fragility, bank run, mutual funds, fund flows, net redemptions of fund shares, fund performance, fund industry, risk sharing

Equity-Style-Indizes und Liquidität in Europa

Contributing to the still scarce European evidence this thesis examines in detail different aspects of equity styles and systematic liquidity in Europe and their role with respect to European stocks and mutual funds. First, a consistent set of European style indices is outlined from which risk factors like market excess return, size, valuation and momentum, but also novel idiosyncratic risk and systematic liquidity factors are derived. The daily 2002 to 2009 time period examined contains the recent financial crisis. As based on a stochastic discount factor GMM based analysis, liquidity is found to help to price European stocks and a decrease in common liquidity during the recent period of market stress reveals the role of liquidity as a state variable of hedging concern to investors. Moreover, the risk factors including liquidity and idiosyncratic risk are found to be relevant in mutual fund performance evaluation as indicated by significant risk exposures of a set of mutual funds with European investment focus. However, regarding different models the risk-adjusted net performance of these funds is mainly found to be indistinguishable from zero, being in line with equilibrium models of fund performance. Furthermore, the dynamic abilities of fund managers with respect to liquidity and risk factor timing are examined by conducting unconditional as well as time-varying analyses based on a Kalman filter approach. The results reveal dynamics in the risk exposures of mutual funds, but evidence on daily risk factor timing is weak with respect to established risk factors as well as liquidity. Finally, the evidence that both liquidity and idiosyncratic risk affect the cross-section of asset returns suggests that both risk factors capture different return characteristics. As motivated by models of price discovery processes, liquidity might capture transaction costs, while idiosyncratic risk seems to capture effects of price discovery

Liquidity and performance of actively managed equity funds

Most scholars have concluded that actively managed equity mutual funds as a whole underperform their passively managed counterparts, linked to some benchmarks. In other words, active equity fund managers on average do not have enough significant stock-picking abilities to add value for investors. However, earlier investigations may be flawed through failure to give adequate consideration to liquidity. Hence, this research pays much attention to liquidity effects on mutual fund performance and argues that it is a preference for holding highly liquid stocks which results in the perceived underperformance. First, we find no significant liquidity premium at fund level, no matter the holding period returns or risk-adjusted performance. This indicates that all or almost all active equity fund managers in effect pay considerable attention to liquidity. We also examine the effects of liquidity on fund performance among actively managed equity funds. In contrast with earlier research, we find that actively managed equity funds in the aggregate perform close to the passive strategy. That means, on average, active equity fund managers do at least have talent sufficient to generate returns to cover costs that their funds impose on investors. This we attribute to the liquidity requirement of mutual funds. Moreover, using bootstrap simulation, we discover that many more mutual funds can be classified as skilled funds rather than lucky funds, once a liquidity factor has been included. Thus, our research provides a new insight into mutual fund performance, and highlights liquidity as an important and non-negligible determinant in the evaluation of mutual fund performance

THREE ESSAYS ON INVESTMENTS

This dissertation consists of three essays on investments. The first essay examines the incidence, determinants, and consequences of hedge fund share restriction changes. This paper finds that nearly one in five hedge funds change their share restrictions (e.g., lockup) over the period of 2007-2012. Share restriction changes are not random. Fund’s asset illiquidity, liquidity risk, and performance are related to share restriction changes. A hazard model indicates that funds who actively manage liquidity concerns live longer by adjusting share restrictions. The paper examines whether changes in share restrictions create an endogeneity bias in the share illiquidity premium (Aragon, 2007) and find that 18% of the premium can be explained by the dynamic nature of contract changes. The second essay examines why mutual funds appear to underperform hedge funds. Utilizing a unique panel of mutual fund contracts changes, this paper explores several possible channels, including: alternative investment practices (e.g., short sales and leverage), performance-based compensation, and the ability to restrict the funding risk of fund flows. This paper documents that over our sample period, mutual funds were more likely to shift their contracting environment closer to that of hedge funds. However, this shift provided no benefit to mutual funds and the paper finds no causal link between these contract changes and improvements in performance. Rather, this paper casts doubt on the binding nature of investment restrictions in the mutual fund industry. The third essay examines whether the 52-week high effect (George and Hwang, 2004) can be explained by risk factors. The paper finds that it is more consistent with investor underreaction caused by anchoring bias: the presumably more sophisticated institutional investors suffer less from this bias and buy (sell) stocks close to (far from) their 52-week highs. Further, the effect is mainly driven by investor underreaction to industry instead of firm-specific information. The 52-week high strategy works best among stocks whose values are more affected by industry factors. The 52-week high strategy based on industry measurement is more profitable than the one based on idiosyncratic measurement

Scale and Skill in Mutual Fund Management: Evidence from Norway

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

Zhodnocení výkonnosti podílových fondů v Číně

Import 02/11/2016According to there are more and more Chinese people start to try to join the collective investment, and the mutual funds have been a good choice for them. In this thesis, there will be introduced what it is the principle of collective investment to help people to know about mutual funds generally. Then, there will be an introduction about overview of mutual fund industry in China, there will be the development and mainly classification of mutual fund industry in China. At last, there will be a performance comparison of selected mutual funds, which are five different types and they all are the famous mutual funds in China, there will be comparison mainly about the risk, yield, liquidity and net unit assets of selected mutual funds with the newest data from 2015 to 2016 to help people to know about the performance of selected mutual funds currently.According to there are more and more Chinese people start to try to join the collective investment, and the mutual funds have been a good choice for them. In this thesis, there will be introduced what it is the principle of collective investment to help people to know about mutual funds generally. Then, there will be an introduction about overview of mutual fund industry in China, there will be the development and mainly classification of mutual fund industry in China. At last, there will be a performance comparison of selected mutual funds, which are five different types and they all are the famous mutual funds in China, there will be comparison mainly about the risk, yield, liquidity and net unit assets of selected mutual funds with the newest data from 2015 to 2016 to help people to know about the performance of selected mutual funds currently.154 - Katedra financívelmi dobř

When Does a Mutual Fund's Trade Reveal its Skill?

We conjecture that a mutual fund manager with superior stock selection ability is more likely to benefit from trading in stocks affected by information-events. Taking the probability of informed trading (PIN, Easley, Kiefer, O'Hara, and Paperman, 1996) to measure the amount of informed trading in a stock, and inferring mutual fund trades from a large sample of mutual fund holdings, we provide empirical support for the conjecture. Funds trading high-PIN stocks exhibit superior performance on average, and superior performance that is more likely to persist. The findings are not due to price momentum or the higher returns earned by high-PIN stocks on average. Conclusions remain the same after testing for alternative measures for the amount of informed trading. Decomposing a fund's stock selection ability into "informed trading" and "liquidity provision" adds further insight into fund's underlying strengths. Impatient informed trading is a significant source of alpha for funds trading high-PIN stocks, while liquidity provision is more important as a source of alpha for funds trading low-PIN stocks.