On the Economic Consequences of Index-Linked Investing

A market index summarizes the performance of a group of securities into number.1 The use of stock market indices in particular has been growing exponentially for years. Since Charles Dow introduced his indices in 1884, the number of distinct stock market indices reported in The Wall Street Journal has increased roughly 5 percent per year, as shown in Figure 1. Today’s Journal reports not just the Dow Jones Industrial Average (DJIA) and the S&P 500; it also reports on the Turkey Titans 20 and the Philadelphia Stock Exchange Oil Service Index. Markets are being tracked in more and more detail, and Figure 1 suggests that there is no end in sight.

私募经理人公募从业经验对其业绩的影响

本文运用1094个阳光私募数据,采用交叉分析和多元回归分析,探讨了私募经理人的公募从业经验对业绩的影响,证实了公募从业经验的经理人收益率和波动率普遍较低。本文还发现接受过MBA或者EMBA教育、具有留学和理工科背景的经理人收益率较高,获得过职业奖励的经理人波动率更低,而博士学历和留学背景的经理人波动率较高

The Rights and Wrongs of Shareholder Rights

The company is a legal structure designed to bring together the different parties of a firm—its employees, investors, customers, and suppliers—in the delivery of its corporate purpose. Corporations were established as institutions with autonomous lives—self-standing, legal entities independent of those who worked, financed, and managed them. They were devices to ensure long-term commitment to shared goals and risks, with reciprocal obligations on those engaged in them. A company had to declare its purpose before earning a licence to trade. For example, the East India Company, England’s earliest public company, to issue shares to the public as permanent capital, was given the monopoly for English trade in Asia with reciprocal obligations to protect trade along its routes. There was a mutual relationship between the company and society and a mutual benefit to both. This was carried through to the eighteenth and nineteenth centuries, with canal and railway companies operating under charter to deliver on a public purpose. It was with freedom of incorporation in the middle of the nineteenth century that the focus on public purpose gave way to private interest. Nevertheless, public benefit remained at the heart of many private companies, with the families who owned them, such as Cadbury and Rowntree’s, having an interest in wider social purpose beyond pure financial gain. However, to meet the needs for growth in industrial firms in the twentieth century, equity was issued for internal investment and acquisition that diluted these families to the point that they lost control of their companies. Public markets provided capital that promoted economic development and brought transparency to what were previously opaque private firms. However, this came at a price in the separation of ownership from the control of firms. With the separation of ownership and control came a concern, expressed most forcefully by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property, about the need for shareholders to reassert their authority over corporations to ensure that they were run in the interest of their owners, not the self-interest of their managers. The truth, largely forgotten, is that this argument was embedded in a larger vision that wanted economic and political power, in all its guises, to be exercised to benefit the community at large. This pluralist frame of reference subsequently fell out of view, with consequences that reverberate today. So was born what has become a preoccupation ever since with the “agency problem” in the modern corporation of aligning the interests of managers with those of their shareholders to avoid unprofitable growth or undue complacency

Closet Index Funds and Retail Investor Protection – A Scandinavian Perspective

This paper1 discusses the need for legal measures to ensure a higher degree of investor protection against closet indexing. ‘Closet indexing’ refers to practices where a fund claims to attempt to beat the market, despite following a passive investment strategy in practice. Such practices may harm investors, who might end up paying higher fees than necessary while not receiving the service they expect. The analyses herein are based on the European legal framework for fund management and examine how this framework is applied in Scandinavian countries. Practices from Scandinavian countries reveal the need for legal measures to improve investor protection against closet indexing practices. In particular, the paper concludes that there is a need for a coordinated approach to identifying closet indexing and to securing a better interplay between the European legal framework for fund management and national rules on contract and tort law

Pension Fund Performance and Costs: Small is Beautiful

Using the CEM pension fund data set, we document the cost structure and performance of a large sample of US pension funds. To date, self-reporting biases and a deficiency of comprehensive return and cost data have severely hindered pension fund performance studies. The bias-free CEM dataset resolves these issues and provides detailed information on fund-specific returns, benchmarks and costs for all types of pension plans and equity mandates. We find that pension fund cost levels are substantially lower than mutual fund fees. The domestic equity investments of US pension funds tend to generate abnormal returns (after expenses and trading costs) close to zero or slightly positive, contrasting the average underperformance of mutual funds. However, small cap mandates of defined benefit funds have outperformed their benchmarks by about 3% a year. While larger scale brings costs advantages, liquidity limitations seem to allow only smaller funds, and especially small cap mandates, to outperform their benchmarks.Pension fund performance; US pension funds

Count on Your Subordinates: Young Managers and Innovation Efficiency

We investigate the relationship between executives’ horizons and firms’ innovation efficiency. Motivated by Acharya, Myers, and Rajan’s (2011, JF) theory, we devise a measure of internal governance based on the difference in expected horizons between a CEO and her subordinates. Consistent with our conjecture, we find robust evidence that subordinate managers with longer horizon compared to the CEO can improve firm’s innovation efficiency. Internal governance has a stronger effect on innovation efficiency for firms with elder, generalist CEOs and when the number of subordinates on the board is higher. However, while the presence of powerful CEOs attenuates the effect, overconfident CEOs do not negate the internal governance effect. Our proposed internal governance mechanism seems to be able to address the managerial myopia issue in corporate settings

Suomeen sijoittavien aktiivisesti hoidettujen sijoitusrahastojen tuotto ja aktiivisuus

Rahastosijoittaminen on nykyisin yksi suomalaisten eniten suosimista säästämisen ja sijoittamisen muodoista. Sitä pidetään helppona sekä vaivattomana ja sen voi aloittaa jo hyvin pienilläkin summilla. Viime aikoina aktiivisesti hoidettuja sijoitusrahastoja on kuitenkin syytetty sijoittajien harhaanjohtamisesta, kertoen rahaston aktiivisuuden olevan suurempi kuin mitä se todellisuudessa on. Tässä tutkielmassa selvitetään Suomeen sijoittavien aktiivisesti hoidettujen sijoitusrahastojen todellista aktiivisuutta ja sitä, miten nämä rahastot ovat tuottaneet vertailuindeksiin nähden. Tarkoituksena on selvittää harjoittavatko tutkimuksen kohteena olevat rahastot piiloindeksointia ja kykenevätkö ne tuottamaan vertailuindeksiä parempaa tuottoa. Tutkielmassa käsiteltävä ajanjakso on 30.12.2015 ja 30.06.2017 välinen. Sijoitusrahastojen todellista aktiivisuutta arvioidaan tutkielmassa Active Sharen ja tracking errorin avulla. Näiden mittarien avulla pyritään selvittämään ovatko tutkimuksen kohteena olevat 15 sijoitusrahastoa mahdollisesti piiloindeksointia harjoittavia toimijoita. Piiloindeksointi on toimintaa, jossa rahasto kertoo dokumenteissaan pyrkivänsä vertailuindeksin tuottoa parempaan tuottoon aktiivisen salkunhoidon avulla, mutta todellisuudessa rahasto tyytyy vain seuraamaan vertailuindeksiään. Tutkielmassa ilmi tulleiden tulosten perusteella valtaosa Suomeen sijoittavista aktiivisesti hoidetuista sijoitusrahastoista on piiloindeksointia mahdollisesti harjoittavia toimijoita, jotka eivät kykene ”aktiivisen” salkunhoidon avulla saavuttamaan vertailuindeksiä parempaa tuottoa. Helsingin pörssi on pieni markkinapaikka, jolloin vertailuindeksistä poikkeavien valintojen tekeminen voi olla haastavaa. Tämän ei tulisi kuitenkaan toimia selityksenä sille, miksi rahastot harhaanjohtavat sijoittajia väittäen aktiivisuuttaan suuremmaksi kuin se todellisuudessa on. Tulevaisuudessa Finanssivalvonnan tulisi nykyistä kovemmin ottein puuttua sijoittajien harhaanjohtamiseen ja valheelliseen markkinointiin.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format

Notre Dame Lawyer - Spring 2013

https://scholarship.law.nd.edu/nd_lawyer/1036/thumbnail.jp

The (Mis)uses of the S&P 500

The S&P 500 is widely used to (i) direct capital through “passive” investing, (ii) benchmark investment portfolios, and (iii) evaluate firm performance. The securities regulatory regime’s approach to each of these uses is fundamentally flawed. I show that the index is neither neutral nor constant: it represents substantial amounts of discretionary decision-making and is simply one particular large-cap portfolio. I then argue that an “S&P 500 fund” is not meaningfully passive, the mutual fund prospectus benchmark requirement is flawed, and the requirement that index constituents compare their performance to that of the index is nonsensical. I propose regulatory changes to correct these misuses