On the behavior of mutual fund investors and managers

Abstract: This thesis investigates empirically and theoretically the behavior of mutual fund investors and managers. These two aspects are closely related to each other. Investors try to select funds that follow an optimal investment policy from their point of view, while fund managers are typically interested in maximizing net fund inflows. In the first part of the thesis, we analyze the determinants of mutual fund flows, concentrating on the impact of past performance on fund flows. In particular, we investigate the lag structure of the flow-performance relationship and the impact of different classification systems on fund flows. In the second part of the thesis, we study the strategic behavior of mutual fund managers. In this part, we first consider the impact of auto-correlation and cross-correlation in fund returns on statistical tests of risk taking by fund managers performed in the literature. Finally, in a two-period model, we study risk-taking incentives of mutual fund managers with ranking objectives and then empirically test the predictions of the model.

The Dynamics of the Impact of Past Performance on Mutual Fund Flows

This study reconsiders the determinants of flows into US growth funds, focusing in particular on the dynamics of the impact of past performance on flows.We model the flow-performance relationship at the monthly frequency, allowing for dependence of the sensitivity of flows to past performance on size and age of the fund.The dynamics of the impact of past performance is modelled using polynomial lag structures.Performance from 6 to 8 months ago seems to have thestrongest impact on net flows to US growth funds.We observe that performance during the most recent quarter is less important than performance during the remaining three quarters of the first year, suggesting that some investors react to fund performance with a certain lag.Specifications based on average past performance at annual or quarterly frequency are strongly rejected.The first three years of past performance history account for about 90 percent of the total impact of past performance on flows.The well-documented convexity of the flow-performance relationship appears robust to allowing for dependence of this relationship on size and age of the fund.The return on systematic risk factors has a small additional impact on top of the impact of risk-adjusted returns.investment trusts;return on investment;performance

Mutual Fund Tournament: Risk Taking Incentives Induced by Ranking Objectives

There is now extensive empirical evidence showing that fund managers have relative performance objectives and adapt their investment strategy in the last part of the calendar year to their performance in the early part of the year. However, emphasis was put on returns in excess of some exogenous benchmark return.In this paper, we investigate whether fund managers have ranking objectives (as in a tournament).First, in a two-period model, we analyze the game played by two risk-neutral fund managers with ranking objectives.We derive conditions on the set of possible strategies under which the aggregate amount of risk undertaken in the late period is larger than in the first period.In the second part of the paper, we provide evidence that (i) funds have risk incentives generated by ranking objectives, (ii) risk induced by ranking objectives is mainly idiosyncratic, and (iii) risk incentives generated by ranking objectives are stronger for funds ranked in the top decile after the first part of the year.investment trusts;financial management;financial risk;performance

On the Behavior of Mutual Fund Investors and Managers.

Abstract: This thesis investigates empirically and theoretically the behavior of mutual fund investors and managers. These two aspects are closely related to each other. Investors try to select funds that follow an optimal investment policy from their point of view, while fund managers are typically interested in maximizing net fund inflows. In the first part of the thesis, we analyze the determinants of mutual fund flows, concentrating on the impact of past performance on fund flows. In particular, we investigate the lag structure of the flow-performance relationship and the impact of different classification systems on fund flows. In the second part of the thesis, we study the strategic behavior of mutual fund managers. In this part, we first consider the impact of auto-correlation and cross-correlation in fund returns on statistical tests of risk taking by fund managers performed in the literature. Finally, in a two-period model, we study risk-taking incentives of mutual fund managers with ranking objectives and then empirically test the predictions of the model.

On the Empirical Evidence of Mutual Fund Strategic Risk Taking

We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers.Several studies suggest that fund performance in the first semester of a year influences risk-taking in the second semester.However, we show that previous empirical studies implicitly assume that idiosyncratic fund returns (in a factor model) are uncorrelated across funds.We present generalized methodologies (based on both contingency tables and regression analysis) that accommodate the case of a general error structure.We show that the correlation between idiosyncratic fund returns is essential to the analysis and, when it is taken into account, the empirical evidence of strategic risk taking by fund managers disappears.investment trusts;financial risk;financial management;performance

On the Empirical Evidence of Mutual Fund Strategic Risk Taking

We reexamine empirical evidence on strategic risk-taking behavior by mutual fund managers.Several studies suggest that fund performance in the first semester of a year influences risk-taking in the second semester.However, we show that previous empirical studies implicitly assume that idiosyncratic fund returns (in a factor model) are uncorrelated across funds.We present generalized methodologies (based on both contingency tables and regression analysis) that accommodate the case of a general error structure.We show that the correlation between idiosyncratic fund returns is essential to the analysis and, when it is taken into account, the empirical evidence of strategic risk taking by fund managers disappears.

Towards a new image processing system at Wendelstein 7-X: From spatial calibration to characterization of thermal events

Wendelstein 7-X (W7-X) is the most advanced fusion experiment in the stellarator line and is aimed at proving that the stellarator concept is suitable for a fusion reactor. One of the most important issues for fusion reactors is the monitoring of plasma facing components when exposed to very high heat loads, through the use of visible and infrared (IR) cameras. In this paper, a new image processing system for the analysis of the strike lines on the inboard limiters from the first W7-X experimental campaign is presented. This system builds a model of the IR cameras through the use of spatial calibration techniques, helping to characterize the strike lines by using the information given by real spatial coordinates of each pixel. The characterization of the strike lines is made in terms of position, size, and shape, after projecting the camera image in a 2D grid which tries to preserve the curvilinear surface distances between points. The description of the strike-line shape is made by means of the Fourier Descriptors