The determinants of the flow of funds of managed portfolios: mutual funds versus pension funds

Due to differences in financial sophistication and agency relationships, we posit that investors use different criteria to select portfolio managers in the retail mutual fund and fiduciary pension fund industry segments. We provide evidence on investors’ manager selection criteria by estimating the relation between manager asset flow and performance. We find that pension fund clients use quantitatively sophisticated measures like Jensen’s alpha, tracking error, and outperformance of a market benchmark. Pension clients also punish poorly performing managers by withdrawing assets under management. In contrast, mutual fund investors use raw return performance and flock disproportionately to recent winners but do not withdraw assets from recent losers. Mutual fund manager flow is significantly positively related to Jensen’s alpha, a seemingly anomalous result in light of a relatively unsophisticated mutual fund client base. We provide preliminary evidence, however, that this relation is driven by a high correlation between Jensen’s alpha and widely available summary performance measures, such as Morningstar’s star rating. By documenting differences in the flow-performance relation, we contribute to the growing literature linking fund manager behavior to the implicit incentives to increase assets under management. We show that several forces combine to weaken the incentive for pension fund managers to engage in the type of risk-shifting behavior identified in the mutual fund literature.Mutual funds ; Pensions ; Investments

Star power: the effect of Morningstar ratings on mutual fund flows

Morningstar, Inc., has been hailed in both academic and practitioner circles as having the most influential rating system in the mutual fund industry. We investigate Morningstar’s influence by estimating the value of a star in terms of the asset flow it generates for the typical fund. We use event-study methods on a sample of 3,388 domestic equity mutual funds from November 1996 to October 1999 to isolate the “Morningstar effect” from other influences on fund flow. ; We separately study initial rating events, whereby a fund is rated for the first time on its 36-month anniversary, and rating change events. An initial five-star rating results in average six-month abnormal flow of $26 million, or 53 percent above normal expected flow. Following rating changes, we find economically and statistically significant abnormal flow in the expected direction, positive for rating upgrades and negative for rating downgrades. Furthermore, we observe an immediate flow response, suggesting that some investors vigilantly monitor this information and view the rating change as “new” information on fund quality. Overall, our results indicate that Morningstar ratings have unique power to affect asset flow.Mutual funds

Libor at crossroads: stochastic switching detection using information theory quantifiers

This paper studies the 28 time series of Libor rates, classified in seven maturities and four currencies), during the last 14 years. The analysis was performed using a novel technique in financial economics: the Complexity-Entropy Causality Plane. This planar representation allows the discrimination of different stochastic and chaotic regimes. Using a temporal analysis based on moving windows, this paper unveals an abnormal movement of Libor time series arround the period of the 2007 financial crisis. This alteration in the stochastic dynamics of Libor is contemporary of what press called "Libor scandal", i.e. the manipulation of interest rates carried out by several prime banks. We argue that our methodology is suitable as a market watch mechanism, as it makes visible the temporal redution in informational efficiency of the market.Comment: 17 pages, 9 figures. arXiv admin note: text overlap with arXiv:1508.04748, arXiv:1509.0021

The (in)visible hand in the Libor market: an Information Theory approach

This paper analyzes several interest rates time series from the United Kingdom during the period 1999 to 2014. The analysis is carried out using a pioneering statistical tool in the financial literature: the complexity-entropy causality plane. This representation is able to classify different stochastic and chaotic regimes in time series. We use sliding temporal windows to assess changes in the intrinsic stochastic dynamics of the time series. Anomalous behavior in the Libor is detected, especially around the time of the last financial crisis, that could be consistent with data manipulation.Comment: PACS 89.65.Gh Econophysics; 74.40.De noise and chao

A permutation Information Theory tour through different interest rate maturities: the Libor case

This paper analyzes Libor interest rates for seven different maturities and referred to operations in British Pounds, Euro, Swiss Francs and Japanese Yen, during the period years 2001 to 2015. The analysis is performed by means of two quantifiers derived from Information Theory: the permutation Shannon entropy and the permutation Fisher information measure. An anomalous behavior in the Libor is detected in all currencies except Euro during the years 2006--2012. The stochastic switch is more severe in 1, 2 and 3 months maturities. Given the special mechanism of Libor setting, we conjecture that the behavior could have been produced by the manipulation that was uncovered by financial authorities. We argue that our methodology is pertinent as a market overseeing instrument.Comment: arXiv admin note: text overlap with arXiv:1304.039

A review of the water desalination technologies

Desalination is commonly adopted nowadays to overcome the freshwater scarcity in some areas of the world if brackish water or salt water is available. Different kinds of technologies have been proposed in the last century. In this paper, the state of the mainstream solutions is reported, showing the current commercial technologies like reverse osmosis (RO), Multi-Stages Flash desalination (MSF) and Multi-Effect Distillation (MED), and the new frontiers of the research with the aim of exploiting renewable sources such as wind, solar and biomass energy. In these cases, seawater treatment plants are the same as traditional ones, with the only difference being that they use a renewable energy source. Thus, classifications are firstly introduced, considering the working principles, the main energy input required for the treatment, and the potential for coupling with renewable energy sources. Each technology is described in detail, showing how the process works and reporting some data on the state of development. Finally, a statistical analysis is given concerning the spread of the various technologies across the world and which of them are most exploited. In this section, an important energy and exergy analysis is also addressed to quantify energy losses

Sea wave energy. A review of the current technologies and perspectives

The proposal of new technologies capable of producing electrical energy from renewable sources has driven research into seas and oceans. Research finds this field very promising in the future of renewable energies, especially in areas where there are specific climatic and morphological characteristics to exploit large amounts of energy from the sea. In general, this kind of energy is referred to as six energy resources: waves, tidal range, tidal current, ocean current, ocean thermal energy conversion, and saline gradient. This review has the aim to list several wave-energy converter power plants and to analyze their years of operation. In this way, a focus is created to understand how many wave-energy converter plants work on average and whether it is indeed an established technology

Electron beam melting of Ti-6Al-4V lattice structures: correlation between post heat treatment and mechanical properties

Additive manufacturing processes are considered advanced manufacturing methods. It would be possible to produce complex shape components from a computer-aided design model in a layer-by-layer manner. As one of the complex geometries, lattice structures could attract lots of attention for both medical and industrial applications. In these structures, besides cell size and cell type, the microstructure of lattice structures can play a key role in these structures’ mechanical performance. On the other hand, heat treatment has a significant influence on the mechanical properties of the material. Therefore, in this work, the effect of the heat treatments on the microstructure and mechanical behaviour of Ti-6Al-4V lattice structures manufactured by electron beam melting was analysed. The main mechanical properties were compared with the Ashby and Gibson model. It is very interesting to notice that a more homogeneous failure mode was found for the heat-treated samples. The structures’ relative density was the main factor influencing the mechanical performance of the heat-treated samples. It is also found that the heat treatments were able to preserve the stiffness and the compressive strength of the lattice structures. Besides, an increment of both the elongation at failure and the absorbed energy was obtained after the heat treatments. Microstructure analysis of the heat-treated samples confirms the increment of ductility of the heat-treated samples with respect to the as-built one

Broker Incentives and Mutual Fund Market Segmentation

We study the impact of investor heterogeneity on mutual fund market segmentation. To motivate our empirical analysis, we make two assumptions. First, some investors inherently value broker services. Second, because brokers are only compensated when they sell mutual funds, they have little incentive to recommend funds available at lower cost elsewhere. The need for mutual fund families to internalize broker incentives leads us to predict that the market for mutual funds will be highly segmented, with families targeting either do-it-yourself investors or investors who value broker services, but not both. Using novel distribution channel data, we find strong empirical support for this prediction; only 3.3% of families serve both market segments. We also predict and find strong evidence that mutual funds targeting performance-sensitive, do-it-yourself investors will invest more in portfolio management. Our findings have important implications for the expected relation between mutual fund fees and returns, tests of fund manager ability, and the puzzle of active management. Furthermore, they suggest that changing the way investors compensate brokers will change the nature of competition in the mutual fund industry.