Risk Factors On Returns Of Closed-End Funds

Risk factors of closed-end funds may not be identical to those of common stocks due to the unique characteristics of closed-end funds whose share price is different from net asset value determined by underlying investment portfolios.  This study investigates the relationship between closed-end fund returns and the risk factors measured from two types of assets, fund itself and its underlying portfolios.  We also examine the size and the book-to-market effect of both two types of assets.  This paper finds that size and book-to-market related factors measured from both fund itself and its investment portfolio play a significant role as risk factors, accounting for closed-end fund returns. These risk factors measured from fund itself are observed as equally important as those from investment portfolio characteristics. In addition, the book-to-market effect of fund itself assets is clearly showed

Service-Driven Growth Pattern In IT Industries And Contributing Factors:A New Pattern In The Korean Industrial Development Perspective

This paper examines the pattern behind rapidly growing Korea’s IT industries. Korea has characterized economic growth based on export demand rather than domestic demand at the traditional industries such as automobile, electronics, steel, and shipbuilding etc. However, the recent development of IT industry is indicating a different aspect from traditional sectors. The rapid growth in service demand is becoming a key factor in the rapid growth and high competitiveness of IT industry. A statistical estimation testing relationship between mobile telecommunication, Internet service, and wireless equipment, computer, strongly supports service-driven growth pattern of IT industry. Strong network externalities in demand side, government’s demand promotion policies, residential environment, and users’ preferences, are main contributing factors to this new growth pattern

The impact of the short-short rule repeal on timing ability and other characteristics of mutual funds

Repealed on September l, 1997, Internal Revenue Service Code Section 851 (b)(3) commonly known as the short-short rule (SSR) or the 30 percent gross income test was a burden for fund managers trying to manage their portfolio in an efficient, timely, and active manner. Several changes to portfolio management and trading activity in the mutual fund industry have been anticipated since the short-short rule repeal. Funds can be free from administrative strain and have greater flexibility in the selection of hedging, trading, and investment strategies as well as market liquidity. In other words, the SSR repeal allows fund managers to engage in new trading strategies involving short-term trades. The objective of this study is to investigate the effects of repealing the short-short rule on the market timing ability, risk characteristics, and trading activities of mutual funds. With respect to the market timing ability, I propose a hypothesis that the short-short rule was the reason for managers\u27 negative market timing ability. It is assumed that the mutual fund managers could not follow market movements while complying with the short-short rule. Changes in the risk, risk adjusted performance, and risk management of mutual funds are also examined. Moreover, differences in the turnover ratio, expense ratio, and short-term capital gains before and after the short-short rule repeal are studied. The results of this study on the short-short rule repeal lead to three observations. First, it is clearly observed that market timing ability for mutual funds is improved. In three market timing models with three kinds of regression estimators, the average changes in timing ability after the SSR repeal display a statistically significant positive sign. In particular, it is found that fund managers have a positive market timing ability beyond a positive change of ability after the SSR repeal in Goetzmann et al.\u27s extension model. Second, the risk measures including beta, idiosyncratic risk, and market risk-adjusted risk for pre-SSR repeal, clearly show an increase after SSR repeal. The abnormal returns of funds are also improved. Jensen\u27s alpha and the mean difference test show that the abnormal performance of funds is enhanced after the SSR repeal. Meanwhile, the cumulative abnormal returns (CAR) exhibit a downward pattern right after the SSR repeal. In terms of risk management, it is detected that fund managers reduce the size of risk change on prior performance after the SSR repeal. Third, the expense ratio and the percent of cash holding position significantly drop, while the turnover ratio shows a marginal increase after the SSR repeal, which is contrary to expectation. This research makes major contributions in three ways. First, this is the first empirical study on the impact of the abolition of the short-short rule upon the mutual fund industry. No research has attempted to address changes in the characteristics of mutual funds such as trading activity or risk management even though more than five years have passed since the rule was eliminated. Second, the short-short rule repeal can show that the market timing ability of fund managers is not negative. In addition to the cash flow, the option-like, and the mismatch hypotheses, the short-short rule hypothesis can contribute to explaining the perverse market timing ability of mutual funds managers. Third, this study could help answer why the use of derivatives recently increased in the mutual fund industry