Mutual fund redemptions: Liquidity preferences in fund asset sales

This study investigates whether mutual funds that experience redemptions preferentially sell their more-liquid stocks. Investors that remain in such funds may inherit portfolios of less-liquid stocks, with an associated transfer of wealth to redeemers. Using 626 mutual fund-periods between 1995 and 1999 we observe that funds do indeed have a systematic preference for selling their more-liquid stocks when they experience redemptions. Our findings question the efficacy of a buy-and-hold strategy where investors could be disadvantaged by managers preferentially selling their more-liquid assets

Broker Recommendations and Mutual Fund Trades

We investigate the alignment of mutual fund trades with brokers’ recommendations and their associated performance. Using 2,730 funds with 44,315 fund-periods between 1994 and 2005, we find that more than 20% of funds adjust their portfolios in line with brokers’ recommendations. However, funds that trade counter to these recommendations, on average, earn superior excess returns. This superior performance is most pronounced in small funds holding less-liquid stocks that trade more actively, and we attribute this to their private information having greater incremental value

Financial risk protection from out-of-pocket health spending in low- and middle-income countries: A scoping review of the literature

Background Financial risk protection (FRP), defined as households’ access to needed healthcare services without experiencing undue financial hardship, is a critical health systems target, particularly in low- and middle-income countries (LMICs). Given the remarkable growth in FRP literature in recent times, we conducted a scoping review of the literature on FRP from out-of-pocket (OOP) health spending in LMICs. The objective was to review current knowledge, identify evidence gaps and propose future research directions. Methods We followed the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) 2020 guidelines to conduct this scoping review. We systematically searched PubMed, Scopus, ProQuest and Web of Science in July 2021 for literature published since 1 January 2015. We included empirical studies that used nationally representative data from household surveys to measure the incidence of at least one of the following indicators: catastrophic health expenditure (CHE), impoverishment, adoption of strategies to cope with OOP expenses, and forgone care for financial reasons. Our review covered 155 studies and analysed the geographical focus, data sources, methods and analytical rigour of the studies. We also examined the level of FRP by disease categories (all diseases, chronic illnesses, communicable diseases) and the effect of health insurance on FRP. Results The extant literature primarily focused on India and China as research settings. Notably, no FRP study was available on chronic illness in any low-income country (LIC) or on communicable diseases in an upper-middle-income country (UMIC). Only one study comprehensively measured FRP by examining all four indicators. Most studies assessed (lack of) FRP as CHE incidence alone (37.4%) or as CHE and impoverishment incidence (39.4%). However, the LMIC literature did not incorporate the recent methodological advances to measure CHE and impoverishment that address the limitations of conventional methods. There were also gaps in utilizing available panel data to determine the length of the lack of FRP (e.g. duration of poverty caused by OOP expenses). The current estimates of FRP varied substantially among the LMICs, with some of the poorest countries in the world experiencing similar or even lower rates of CHE and impoverishment compared with the UMICs. Also, health insurance in LMICs did not consistently offer a higher degree of FRP. Conclusion The literature to date is unable to provide a reliable representation of the actual level of protection enjoyed by the LMIC population because of the lack of comprehensive measurement of FRP indicators coupled with the use of dated methodologies. Future research in LMICs should address the shortcomings identified in this review

Mutual Fund Trades: Timing Sentiment and Managing Tracking Error Variance

We use portfolio holdings to show that mutual funds preferentially trade stocks according to the stocks‟ sentiment betas. Stocks with high sentiment betas are more responsive to investor sentiment and increase (decrease) in value as sentiment increases (decreases). Sentiment-based trades may be motivated by the opportunity to increase fund returns through timing predictability in sentiment, or by management of portfolio risk. Sentiment is mean-reverting, but its level and recent change only partially explain these trades. In contrast, 30 percent of sentiment-based trades are explained by the initial sentiment beta of funds that trade to reduce their tracking error variance

Does currency smirk predict foreign exchange return?

This paper finds the predictive power of currency smirk to forecast foreign exchange (FX) return to be convincing. Although the steeper currency smirk appears in the middle of the trading day, the conclusive currency smirks' predictability lasts over the next trading day, as the FX market is highly adept at incorporating the information embedded in the currency smirk. The implication of these fmdings is that the currency smirk is distinctive for forecasting very short-term FX fluctuations, and that day- or overnight FX traders can apply its uniqueness to profit from quick price swings in the 24-hour globalFX market

Loan loss reserves and bank stock returns: Evidence from Asian banks

This study examines the effects of the loan-loss-reserves-to-gross-loans ratio, a proxy for credit risk, on bank stock returns for a sample of 42 listed Asian banks during the period 1999-2007. By applying a panel data analysis that includes a control for market returns, book-to-market ratio, size, and country-specific factors, the results show that the ratio has a negative and significant influence on bank stock returns. Overall, the results suggest that credit risk remains a major threat to Asian banks. In addition, while loan loss reserves are needed for mitigating credit risk, investors do not consider them as good news or a credible signal concerning bank intentions to resolve problem loans

Systematic risk and the performance of mutual funds pursuing momentum and contrarian trades

We examine mutual fund trading activity to determine whether they rebalance their portfolios towards stocks that were recent superior performers (a momentum strategy) or towards stocks that recently underperformed (a contrarian strategy). Using 2,829 funds with 49,661 fund-periods between 1991 and 2005, we find that around 15% of the funds exhibit contrarian trading behavior with a similar percentage following a momentum strategy. We highlight the importance of a stock’s risk to traders adopting momentum and contrarian strategies. Mutual funds that follow a momentum strategy and acquire high-risk stocks improve their performance, while those following a contrarian strategy in these stocks diminish their performance. Both contrarian and momentum trading behavior by funds persists

Investor sentiment and momentum and contrarian trading strategies: Mutual fund evidence

Stocks with high sentiment betas are more sensitive to investor sentiment, with more subjective valuations. We contend that sentiment beta also captures the duration of mispricing. Accordingly, stocks with high (low) sentiment betas provide opportunities for momentum (contrarian) traders. We form hypothetical zero investment portfolios of high (low) sentiment betas stocks, and show that momentum profits decompose to reveal positive (negative) serial correlation of idiosyncratic returns, that contribute to momentum (contrarian) profits. Furthermore, actual mutual funds identified as momentum (contrarian) traders hold stocks with higher (lower) sentiment betas. Additionally, funds adjust sentiment betas to enhance performance as sentiment changes

Investor Sentiment and the Performance of Mutual Funds Pursuing Momentum and Contrarian Trading Strategies

The success of mutual funds engaging in momentum and contrarian trading strategies is predicated on the identification of mispriced stocks. Stock investor sentiment betas capture salient characteristics that predispose stocks to mispricing. Funds engage in momentum and contrarian trading in equal proportions, but differ in the sentiment betas of the stocks in their portfolios. Momentum funds hold stocks with higher sentiment betas, and with a wider spread of betas compared to contrarian funds. Fund excess returns are strongly related to Baker and Wurgler’s (2007) change in sentiment index, and the mean and spread of the sentiment betas of their stocks

Comparative Value-relevance of GAAP, IBES, S&P Core, Cash Earnings and Cash Flows

This study examines the impact the global financial crisis had on the value relevance of GAAP and non-GAAP earnings. We adopt the Ohlson (1995) valuation and CAR models to test the value relevance and information content of alternative earnings measures. We use six different earnings measures comprising IBES earnings, Standard & Poor’s (S&P) core earnings, cash earnings, cash flows from operations, earnings from operations adjusted to exclude special items under GAAP and income before extraordinary items under GAAP. We draw our sample from US publicly traded firms between 2002 and 2010. Our sample is partitioned into Financial and non-Financial firms, and S&P 500 and non-S&P 500 firms. The results show that investors place greater value relevance on GAAP earnings during the GFC period relative to the pre-GFC period