Performance of Mutual Funds An International Perspective Edited by Greg N Gregoriou PERFORMANCE OF MUTUAL FUNDS Also edited by Greg N Gregoriou ADVANCES IN RISK MANAGEMENT ASSET ALLOCATION AND INTERNATIONAL INVESTMENTS DIVERSIFICATION AND PORTFOLIO MANAGEMENT OF MUTUAL FUNDS Performance of Mutual Funds An International Perspective Edited by GREG N GREGORIOU Selection and editorial matter © Greg N Gregoriou 2007 Individual chapters © contributors 2007 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988 First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St Martin’s Press, LLC and of Palgrave Macmillan Ltd Macmillan® is a registered trademark in the United States, United Kingdom and other countries Palgrave is a registered trademark in the European Union and other countries ISBN-13: 978-0-230-01914-0 ISBN-10: 0-230-01914-5 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Performance of mutual funds : an international perspective / edited by Greg N Gregoriou p cm — (Finance and capital markets series) Includes bibliographical references and index ISBN 0-230-01914-5 (cloth : alk paper) Mutual funds Mutual funds–Europe I Gregoriou, Greg N., 1956—II Series: Finance and capital markets HG4530.P427 2006 332.63Ј27—dc22 2006043563 10 16 15 14 13 12 11 10 09 08 07 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne To my mother Evangelia and in loving memory of my father Nicholas This page intentionally left blank Contents Acknowledgments xi Notes on the Contributors xii Introduction xix Returns and Fund Flows in Canadian Mutual Funds Rajeeva Sinha and Vijay Jog 1.1 Introduction 1.2 Literature on performance and trading behavior of mutual funds 1.3 Methodology 1.4 Data 1.5 Empirical findings 1.6 Conclusion References 14 15 New Zealand Equity Fund Performance Appraisal: A Non-parametric Approach 17 Dimitri Margaritis, Roger Otten and Alireza Tourani-Rad 2.1 2.2 2.3 2.4 2.5 2.6 Introduction New Zealand mutual fund market Sample Methodology Empirical findings Conclusion References 17 19 21 21 26 28 29 vii viii CONTENTS Danish Mutual Funds: Description, Costs, Performance, and a European Comparison Ken L Bechmann and Jesper Rangvid 3.1 Introduction 3.2 Size of the Danish mutual fund market 3.3 What is a typical “Danish mutual fund”? 3.4 Expenses and mutual fund investments 3.5 Costs and performance of Danish mutual funds relative to European funds 3.6 Costs and performance of Danish mutual funds 3.7 Conclusion References Performance Idiosyncrasy in the Italian Mutual Fund Industry Roberto Savona 4.1 4.2 4.3 4.4 4.5 4.6 Seasonality and Performance in Spanish Mutual Funds Management Juan Carlos Matallín-Sáez and David Moreno 5.1 5.2 5.3 5.4 5.5 Introduction The Italian mutual funds industry The data Conditional performance evaluation Empirical results Conclusion References Introduction Performance and seasonality measurement Database Empirical results Conclusion References On the Relationship Between Price and Quality in the US Mutual Fund Industry: Evidence from the 1992–2003 Period Javier Gil-Bazo and Pablo Ruiz-Verdú 6.1 6.2 6.3 6.4 Introduction Data Results Conclusion References 31 31 32 37 44 49 56 62 62 63 63 65 65 70 71 82 83 85 85 87 89 92 104 106 108 108 111 117 124 125 CONTENTS Yaari’s Dual Theory of Choice, Generalized Gini’s Mean Differences, and Performance Evaluation of Mutual Funds ix 127 Wolfgang Breuer and Marc Gürtler 7.1 Introduction 7.2 The investor’s portfolio selection problem 7.3 A dual measure of risk and (generalized) Gini’s mean differences 7.4 Empirical example 7.5 Conclusion References Efficiency of US Mutual Funds Using Data Envelopment Analysis 127 128 136 142 146 150 152 Greg N Gregoriou 8.1 8.2 8.3 8.4 8.5 8.6 Introduction Literature review Data Methodology Empirical results Conclusion References Performance Persistence of Unit Funds: Evidence from a Small, Integrated Market 152 154 155 156 159 166 166 168 Valerio Potí and Eoghan Duffy 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10 Introduction Literature review Methodology Data Results Implications Conclusion References What Is Behind the Financial Performance of Ethical Funds? A Study of the American Market 168 169 171 172 173 180 180 181 183 Radu Burlacu, Isabelle Girerd-Potin and Denis Dupré 10.1 10.2 10.3 10.4 Introduction Literature review Measuring ethical performance Empirical methodology and data 183 185 186 187 244 S PA N I S H M U T U A L I N V E S T M E N T F U N D S heteroskedastic and that they are influenced directly by the size variable in both total funds and equity funds They are only inversely proportional to size in the case of bond funds Therefore, the WLS method was applied so as to estimate Equation (12.1) The model was transformed by dividing it by the square root of the size variable and then multiplying the result by the same expression Table 12.7 shows that all the estimations of the model parameters using the WLS method are highly significant (level of significance at per 100) and more efficient than those obtained by OLS The results obtained and presented in Table 12.7 confirm the existence of a significant relationship between financial performance and size, thus leading one to reject the H1 hypothesis At the same time, the relationship between fund size and financial performance for Spanish mutual funds in the period under study has been confirmed as nonlinear Matallín and Fernández (2001) and Matallín (2003) confirmed this point for previous periods Therefore, we have to accept the H2 hypothesis The beta coefficient signs b1 and b2 coincide with the expected values, which are greater and less than 0, respectively At the same time, Table 12.7 illustrates the results of the OLS and WLS regressions of model (12.1) for equity and bond funds, respectively These results are similar to those obtained in the regression of all investment funds So, one cannot reject the H3 null hypothesis, according to which scale economies not depend on fund investment strategies Finally, the Chow test was used to discover whether the fund size effect of equity and bond funds is the same for both The test result gave an F-Snedecor value of 0.775, so all the parameters that were estimated for the equity and bond funds did not differ significantly In other words, the size effect is the same in both cases, independently of the fund investment strategy used in either equity or bond funds Finally, the results obtained from the contrasting of the H4 hypothesis on persistence is shown in Table 12.9 All the funds show that, whatever the size, Table 12.9 Relationship between fund size and persistence Q Total funds – T Equity funds r ˆ – T Bond funds r ˆ – T r ˆ  3.80 0.270** 2.487 E-2 4.40 0.314** 2.608 E-2 4.90 0.307** 0.222** 11.09 0.274** 5.950 E-2** 12.88 0.279** 7.319 E-2** 14.24 0.138 Ϫ2.09 E-2 25.12 ** 0.204 ** 6.934 E-2 26.89 0.317 ** ** 8.688 E-2 29.95 0.294 0.171* 58.10 0.235** 5.028 E-2** 55.24 0.241** 8.044 E-2** 63.66 0.128 Ϫ1.44 E-2 ** ** ** ** ** ** 304.56 0.338 7.527 E-2 191.36 0.301 0.108 296.19 0.681 1.142 E-2 – ˆ Notes: T ϭ Average fund size (millions €); r ϭ Spearman correlation coefficient; b ϭ Estimated slope of Equation (12.3); ** Significant at 1% level (unilateral); * Significant at 5% level (unilateral) JOSÉ L FERNÁNDEZ-SÁNCHEZ AND LADISLAO LUNA 245 the performance persistence is seen in every category or quintile, because all the Spearman correlation coefficients and beta coefficient estimations through the econometric model in Equation (12.3) are both positive and significant at the 1% level However, one can see in the same table that the persistence effect in quintile is greater than in the other quintiles A similar result occurs for the equity funds, and coincides with that obtained by Volkman and Wohar (1995) in the American market The results for bond funds show that persistence occurs in the smaller-sized quintiles, and The results in the larger-sized funds were inconclusive For example, quintile had a significant Spearman correlation coefficient but not the beta coefficient Therefore we cannot reject the H4 hypothesis in the case of bond funds 12.5 CONCLUSION This chapter has described an analysis to discover whether size has an influence on mutual fund financial performance as a result of scale economies, plus the type of relationship that might exist between said variables Infobolsa data concerning mutual investment funds was utilized to provide information in the analysis These funds are domiciled and managed in Spain and cover the period January 2000 to December 2004 Three different methodologies were utilized: the Kruskal–Wallis test, the Spearman correlation analysis, and regression analysis The need to obtain a coherent performance indicator, according to the specific conditions of fund, market and risk-free asset returns in the period under study, has led to an analysis on the coherence limitations of the different indicators as to the financial performance of funds, and the Jensen relative coherence indicator was selected The research provided the following conclusions: ■ For the 2000–04 period the Spanish mutual investment funds had lower return figures than those obtained by the risk-free asset (the Spanish one-year T-bill) but better than those obtained by the market (represented by the S&P 500 index) ■ There is a significant and positive relationship between fund size and financial performance (return–risk) This result coincides with results gleaned from other previous research papers ■ This positive relationship between size and financial performance reaches a certain optimum point, after which performance worsens In other words, Spanish mutual funds show diminishing marginal financial performance These results coincide with those deduced by other authors such as Indro et al (1999), Matallín and Fernández (2001) and Matallín (2003) 246 S PA N I S H M U T U A L I N V E S T M E N T F U N D S ■ The majority of the Spanish funds are smaller than their optimum value, so the Spanish fund market could improve its efficiency by making smaller-sized funds increased in size ■ An inverse relationship was found to exist between the performance and systematic risk variables This result coincides with that obtained by Matallín (2003) for the Spanish fund market This author explains this relationship via the different portfolio rotation strategies followed by funds according to their size (this same inverse relationship is also observed between the systematic risk and size variables) Therefore the larger funds, with rotation being more difficult to achieve, establish conservative risk strategies, but the smaller funds can more easily rotate their portfolios and thus invest with greater market risk ■ Finally, there is no relationship between fund size and persistence of Spanish investment fund performance This result coincides with that obtained by Volkman and Wohar (1995) This result is not conclusive with bond funds NOTES Calculated returns were then annualized by multiplying each value by 12 The systematic risk  is estimated by the market model: (Rp Ϫ Rf) ϭ ␣ ϩ b (Rm Ϫ Rf) ϩ p, with Rp Ϫ Rf the difference between return of fund p (Rp) and risk-free asset return (Rf), Rm Ϫ Rf the difference between market return (Rm) and risk-free asset return, and p, the random disturbance term of fund p Ferrando and Lassala (1998), Ferruz et al (1999), Ferruz (2000b, 2000c), Ferruz et al (2001), Ferruz and Vargas (2003), and Ferruz and Vargas (2004) This chapter used the Spanish monthly one-year Treasury Bill rate as a risk-free financial investment The representative market index used was the Standard & Poor’s S&P 500 The Spanish mutual investment funds invest in different national and international markets, so the representative market index chosen was an international one Other market indexes used in this research are: the Madrid Stock Market General Index, the EuroStoxx 50 and the Financial Times Stock Exchange 100 (FTSE 100) All are correlated with the S&P 500 index, and the results obtained in this research were not affected significantly by the index type used According to the coherence conditions given in Table 12.2, the performance index used for the first sub-period is the Jensen relative coherence index, and for the second sub-period is the classic Jensen index REFERENCES Alvarez, J (1995) “Análisis de los Fondos de Inversión de Renta Fija en Espa”, Investigaciones Económicas, 19(3): 475–88 Ang, J S and Wuh Lin, J (2001) “A Fundamental Approach to Estimating Economies of Scale and Scope of Financial Products: The Case of Mutual Funds”, Review of Quantitative Finance and Accounting, 16(3): 205–21 JOSÉ L FERNÁNDEZ-SÁNCHEZ AND LADISLAO LUNA 247 Ang, J S., Chen, A and Wuh Lin, J (1999) “Information Sharing, Return Characteristics, and Portfolio Beta: The Case of Mutual Funds”, Journal of Investing, 8(3): 54–64 Annaert, J., Van Den Broeck, J and Vander Vennet, R (2001) “Determinants of Mutual Fund Performance: A Bayesian Stockastic Frontier Approach”, Working Paper, University of Antwerp, Belgium Baumol, W., Goldfeld, S., Gordon, L and Koehn, M (1990) The 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An Análisis of UK and US Mutual Fund Managers”, Journal of Economics and Business, 47(3): 241–54 Torre, B and García, M (2001) “Investment Companies as Alternative Institutions to Traditional Banks: An Empirical Analysis of Spanish Reaction to the Mutual Funds Market”, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id ϭ264996 Torre, B and García, M (2002) “El Mercado Espol de Fondos de Inversión de Renta Variable”, Información Comercial Espola, 800: 193–205 Volkman, D A and Wohar, M E (1995) “Determinants of Persistence in Relative Performance of Mutual Funds”, The Journal of Financial Research, 18(4): 415–30 Zera, S and Madura, J (2001) “The Empirical Relationship between Mutual Fund Size and Operational Efficiency”, Applied Financial Economics, 11(3): 243–51 Index absolute coherence indexes 236, 237 account-holding funds 44 accumulating funds 40, 41, 42 active money management 10–11 Activest 217, 218 Adler, N 158 age of fund 21, 22–4, 27 agency conflicts 86 aggregated mutual fund portfolios 89–92, 93, 94, 96, 97 aggressive growth funds 111, 112–15, 120–1, 125 Allais, M 136 Allgemeine Deutsche Investment Gesellschaft (ADIG) 212–13 Allianz-Dresdner 217, 218 Alvarez, J 232, 233 Ambachtsheer, K.P 17 AMP Unit Trust Passive International Shares 27 Anderson, R.I 154 Anderson, T.R 158 Ang, J.S 232, 233, 234 Annaert, J 233 ASB World Shares Trust 28 asset-pricing models 18, 117 see also under individual names AS funds (AltersvorsorgeSondervermögen) 216, 226 atpRating 60–1 Australian mutual funds 19 back-end loads 116, 125 Danish mutual funds 44, 45, 46–7, 56–9; compared with European funds 50, 51 balanced DSF 72, 73, 74 balanced funds Danish mutual funds 36, 40–1 US mutual funds 161, 164–5 Bams, D 88, 110 Banker, R 155 bankruptcy-remote regulation 224 banks and Danish mutual funds 37–8, 44 Germany 210–11, 217–18, 221, 222, 229 Barber, B.B 46 Barberis, N 63 Basarrate, B 87 basic (CCR) DEA model 157–8, 159–65 basket certificates 223–4 Basso, A 155 Bauer, R 20, 186 Baumol, W 232, 233 Bayerische Investment 212 Bechmann, K 56, 59–60, 61 Beck, N 188 Beckers, S 232, 233, 234 Bello, Z 185 beta (systematic risk) 58 Italian mutual funds 77, 78–81, 82 Spanish mutual funds 235–6, 239–41, 246 bond funds Danish 45–7, 47–8, 58–9 Germany 213, 214, 219 Italy 65, 66, 67–8 Spanish mutual funds and size effect 234–5, 242–5 US mutual funds and DEA 161, 162–3, 164, 165 249 250 INDEX bond Italy DSF 72, 73, 74 bond-oriented fund groups 66, 67–8, 74–82 book-to-market (HML) factor 88, 202, 203 Irish mutual funds 171, 172, 180, 181 Boustridge, P 19–20 Bowlin, W.F 154 Breuer, W 127, 128, 130, 143 brokers 221, 222 Brown, K 3, 86 Brown, S.J 2, 169–70, 171 BTNZ Investment Selection Pacific Basin shares 27 Bundesanstalt für Finanzdienstleistungsaufsicht (BAFin) 211, 228 Burlacu, R 186 Canadian mutual funds 1–16 data 5–6 empirical findings 6–14 literature on performance and trading behavior 2–3 methodology 3–5 Capital Asset Pricing Model (CAPM) 18, 117, 184 alphas and US mutual funds 119, 120, 121, 122, 123, 124 generalized version 128, 136 Capital Income Builder Fund 161, 163 capital requirements 223 Carhart, M 18, 87, 88, 170, 171, 172, 186, 207 Carhart’s four-factor model and US mutual funds 109–10, 117, 119–21, 122, 123, 124 Carhart’s model and ethical strength 187–8, 191–4, 198 Casarin, R 64 cash-at-bank 225 Cass, D 130 CDA/Spectrum Thomson Financial database 188–9 certificate-issuing funds 43–4 Cesari, R 64 Chan, A 233 Chan, K 63 Chan, L.K 18 Charnes, A 18, 152, 157 Chen, A 233 Chen, C.R 232, 233, 234 Chevalier, J 2, 3, 86, 87, 110 chi-square statistic 173, 175, 176–9, 180, 181 Choi, J Chow test 244 Christopherson, J 69, 70, 71, 74 Collins, S 233, 234 Cominvest 217, 218 concentration, industry 202–6, 218 conditional performance evaluation 69, 70–1 constant returns to scale (basic) DEA model 157–65 contingency table analysis 171, 173–80 Copenhagen stock exchange 43 co-risk measures (CRM) 132–3, 138–9, 141, 148 correlation analysis 238, 240, 241 Cortez, M.D.C.R 171, 173 cost-based rating of performance 59–61 cost indicators 60–1 costs see fees country/region specific funds 215 credit institutions 221, 222 credit spread 81–2 cross-efficiency DEA model 158–65 cross-sectional analysis 98–9 CRSP Survivorship-Bias Free Mutual Fund database 188–9 CRSP Value-Weighted Market Index 190 comparison with DSI 191–3 cubic (HARA) utility 143, 144, 145, 146 Cummings, L.S 185–6 Dahlquist, M 233 Danish mutual funds 31–62 costs and performance 56–61; costbased rating of performance 59–61 costs and performance relative to European funds 49–56; comparing costs 49–51; performance of Danish funds in a European INDEX context 51–5; relationship between costs and performance 55–6 expenses 44–9; one-time fees 44–7; ongoing fees 47–9 size of Danish mutual fund market 32–7; composition of invested wealth 35–6; dead funds 37; investors 34–5; management company sizes 33–4; total value of invested wealth 31, 32 typical Danish mutual funds 37–44; classification of funds and their taxation 38–41; dependent and independent funds 37–8; listed and unlisted funds 43–4; restrictions on investments by the funds 41–2 Danske Bank 38 Danske Invest 34, 38 Darling, G 153 data envelopment analysis comparison with regression analysis 153 literature review 154–5 New Zealand equity retail funds 17–30 US mutual funds 152–67; basic model 157–8, 159–65; cross-efficiency model 158–65; super-efficiency model 159–64 data envelopment portfolio index (DEPI) 154 DAX 100 index 143 dead funds 37 Deaves, R decile-sorted fund performance 171 DEKA 217 dependent funds 37–8 derivatives 42, 225 DiBartolomeo, D 72 Diltz, J.D 185, 186 diminishing marginal financial performance 234, 244, 245 dispersion 114–15 disposition effect 2–3 distribution channels 221, 222 dividend-paying funds 39, 41, 42 Dodge & Cox Balanced Fund 159, 160 251 dominant styles 63, 64 dominant style factors (DSFs) 71–4, 82 performance, economic conditions and 74–82 Domini Social Index (DSI) 190 comparison with CRSP ValueWeighted Market Index 191–3 Dorfman, R 138, 141 dot-com bubble 111, 121, 124, 216 Dowen, R.J 232, 233, 236 downside deviation 156 Doyle, J.R 158 dual independence axiom 137–8 dual performance measures 136–42 German mutual funds 143, 144–6 dual theory of choice 136–42 dual utility function 138–42 Dupré, D 186 DWS 217 economic conditions 70–1, 74–82 economies of scale 116, 230–4 see also fund size EEC funds 224–5 efficiency score, DEA 22–4, 26–8 efficient frontier 25–6, 27 efficient market theory 231 Ellison, G 2, 3, 86, 87, 110 Elton, E.J 1, 85, 88, 109, 170, 199 EMU stocks 172–81 Engstrom, S 233 environmental and social screens 186 equally-weighted portfolio (EWP) 89–92, 93, 94, 96, 97 equity Europe DSF 72, 73, 74 equity funds Denmark 35–6, 45–8, 56–8, 59 Germany 214, 215, 216, 219 Italy 66, 67 Spanish mutual funds and size effect 234–5, 242–5 US and DEA analysis 161, 163–4, 165 equity international DSF 72, 73, 74 equity-oriented fund groups 66, 67, 74–82 ethical funds 155, 183–209 252 INDEX ethical funds – continued literature review 185–6 performance and management style 190–4 ethical strength (ES) 184, 186–7, 204–7 and financial performance 197–201; informal analysis 197–9; multivariate analysis 199–201 and investment style 201–2, 203 investment style, performance and 194–7 and management variables 201–6 European mutual funds 49–56 costs of Danish mutual funds compared with 49–51 performance of Danish mutual funds and 51–5 relation of costs to performance 55–6 European Union (EU) 65 EU passport 224 UCITS Directive 42 exclusionary screening 195–7 expense ratios Danish mutual funds 47–8, 56–9, 60; compared with European funds 49–51 New Zealand mutual funds 21, 22–4, 27 US mutual funds 108–26; ethical strength 190, 191, 199, 200, 204, 205 Fabozzi, F 18 Faff, R.W 88 Fama, E 18, 88, 117, 169, 171, 172 Färe, R 21 Farnsworth, H 69 fees Danish mutual funds 44–51, 55–61; comparing costs in Danish and European mutual funds 49–50; cost-based rating of performance 59–61; cross-country evidence of cost’s relationship to performance 55–6; one-time fees 44–7; ongoing fees 47–9; performance and costs 56–61 German mutual funds 221–2 and performance in US mutual funds industry 108–26 see also expense ratios; loads Fernández, M.A 233, 244, 245 Ferrando, M 232, 233 Ferruz, L 235–6 Ferson, W 69, 186 financial contracts 42 First Eagle Global Fund 159, 160 flexible DSF 72, 73, 74 FONDAK 212–13 FONDRA 212–13 foreign assets 36 foreign investment companies 213, 218, 229 foreign investors 34–5 foreign securities 219 four-factor model 109–10, 117, 119–21, 122, 123, 124 Francis, J 18 French, K.R 18, 88, 117, 169, 171, 172 front-end loads 116, 125 Danish mutual funds 44–6, 47, 56–9, 60; compared with European funds 50, 51 Funari, S 155 fund boards 211 fund flows 11–14 fund groups 65–6, 67–8, 74–82 fund investments per capita 219–20 fund size Irish mutual funds, stock selection and 172, 180, 181 New Zealand mutual funds 21, 22–4, 27, 27–8 relationship to performance 231–5 Spanish mutual funds and size effect 230–48 US mutual funds 113, 116, 117; ethical strength and financial performance 197–201, 202, 203, 204, 205–6 funds-of-funds 210, 216 funds-of-hedge funds 223, 226 Fung, W 71 Galagedera, D 25 García, M 232 INDEX Geczy, C 185 General Accounting Office (US) 108 General Index of the Spanish Stock Market (Igbm) 89, 90, 92–104 generalized CAPM 128, 136 generalized Gini’s mean differences 136–42 generalized Jensen measure 133–6 generalized Sharpe measure of a fund 131–2, 134 for a given portfolio structure 131, 147–8 generalized Treynor measure 135–6 Geranio, M 64 German Central Bank 228 German Investment Legislation 2004 223 German mutual funds 210–29 forecast 228–9 governance and transparency rules 227–8; publicly available information 227–8; reporting to the federal authority 228 historical development 212–16; 1920s/1930s 212; 1940s 212–13; 1950s 213; 1960s 213; 1970s 214; 1980s 215; 1990s 216; turn of the millennium 216 present-day fund market 216–23; fund companies 217–18; funds 219–22; main competitive products 222–3 ranking 142–6 regulation 223–8; funds 223–6; investment companies 223 Gil, B 232, 233 Gini’s mean differences 150 generalized 136–42 Girerd-Potin, I 186 Goetzmann, W.N 2, 9, 169–70, 171 Goldfeld, S 233 Goldfeld-Quandt test 243 Goldreyer, E.F 185, 186 Gordon, L 233 Goriaev, A 86 Gorman, L 232, 233, 234 governance 227–8 Green, R 158 253 Grieb, T 185 Grinblatt, M 18, 85, 134, 170, 233 growth and income funds 111, 112–15, 120–1, 125 Gruber, M 1, 57, 85, 109 Gürtler, M 127, 128, 130, 143 Hakansson, N.H 130 Hancock, D 154 Harless, D.W 109 harmonized funds 65 Harvey, C 69 Haslem, J.A 154 Haugen, R 86 Hearth, D 233 hedge funds 42, 210, 226 Hendricks, D 2, 168, 169 high-vs-low beta stocks 171, 172, 180, 181 HML factor see book-to-market (HML) factor holding period Holmes, K.A 88 “hot hands” effect 2, 9, 169 see also performance persistence Hsieh, D 71 Hu, M.Y 233 hyperbolic absolute risk aversion (HARA) 127–8, 130 Ibbotson, R 2, 9, 169–70 Ibex-35 index 89, 90, 92, 93, 95–7 ICDI investment objective codes 111, 125 incentive fees 222 independence axiom 136–7 dual 137–8 independent funds 37–8 index certificates 223–4 index funds 216 Indro, D.C 233, 234, 236, 245 industrial production 77, 82 industry concentration 202–4, 205–6, 218 inferior funds 134 information costs 129 Ingersoll, J.E 128 institutional funds 210 institutional investors 34–5, 210 Instrumental Variable Estimator theory 172 254 INDEX insurance agents 221, 222 intensity variables 25 internal rate of return (IRR), compared with raw returns 1–16 international asset allocation strategy 27–8 internationally-investing equity funds 213 Internet bubble 111, 121, 124, 216 Investment Act (Germany) 211, 223–8 investment certificates 222–3 investment companies (Germany) 210–11, 213 concentration 218 distribution channels 221, 222 market shares 217–18 regulation 223 subsidiaries in Luxembourg 216 Investment Company Act 1957 (Germany) 213 Investment Company Institute (ICI) investment objectives see objectives of investment investment style Italian mutual funds: style-matched benchmarks 66–9; style, performance and economic conditions 74–82 US mutual funds: ethical strength and 201–2, 203; ethical strength, investment style and performance 194–7; performance and investment style 190–4 Investment Tax Act (Germany) 223 investment units 225 investor’s portfolio selection problem 128–36 Inwegen, G.B 232, 233 Irish mutual funds 168–82 data 172 implications of findings 180 methodology 171–2 persistence in excess returns 173, 176–7 persistence in performance 173–5, 178–9; over different return intervals 175–80 sample 173, 174–5 Italian mutual funds 63–84 conditional performance evaluation 70–1 data 65–70; information variables 69–70; mutual funds 65–6, 67–8; style-based benchmarks 66–9 empirical results 71–82; identification of dominant style factors 71–4; style, performance and economic conditions 74–82 Italian mutual funds industry 65 Jayaraman, N 88 Jensen index 18, 133–4, 143, 144, 145, 146 Danish mutual funds 56–9 generalized 133–6 Spanish mutual funds 235, 237 Jensen, M.C 1, 17, 169, 187 Jensen model and ethical funds performance 187, 191–4, 198 Jiang, C.X 233 Jobson, J.D 127, 131 Kacperczyk, M 202–3 Kahn, R.N 170–1, 173 Kahneman, D 136 Katz, J.N 188 Khorana, A 63 Koehn, M 233 Korkie, B 127, 131 Koski, J 86 Kosowski, R 17 Kothari, S 88 Kruskal-Wallis test 95–7, 236, 241–2 Lakonishok, J 86 Lassala, C 232, 233 leaning-for-the-tape strategy 87 Lee, C 86–7, 233 Lee, W.Y 233 Lerman, R.S 149 INDEX Lintner, J 128, 136 listed funds 43–4 loads 125 Danish mutual funds 44–7, 56–9, 60; compared with European funds 50, 51 ethical funds 204, 205–6 German mutual funds 222 structure for Canadian equity funds 15 US mutual funds 46, 114, 116, 117; performance and 111, 123 loans 225 Lobosco, A 72 long-term growth funds 111, 112–15, 120–1, 125 long-term performance persistence 9–10 loser funds Canadian mutual funds 11–14, 15 repeat loser Irish mutual funds 171, 173, 176–7, 178–9, 180 loss aversion 2–3 Luther, R.G 185 Luxembourg 53, 216 Lynch, A.W 121 Mack, P 233, 234 Madura, J 232, 233 major mutual fund markets 19, 20 Malkiel, B 1, 2, 9, 170–1, 199–201 management characteristics 201–4, 205–6 see also investment style management companies (Denmark) 33–4, 37–8 management fees 49–51 Mann, T 232, 233, 236 Marín, J 85 market beta 202, 203 market timing 3, 18 marking-up tactic 87 Matallín, J.C 232, 233, 234, 240, 244, 245, 246 maximum drawdown 156 Mazuy, K 18 McMullen, P.R 154 mean–risk analysis 127–51 255 dual measure of risk and generalized Gini’s mean differences 136–42 investor’s portfolio selection problem 128–36 ranking German mutual funds 142–6 mean-variance preferences 129–30, 131 momentum factor 88, 170, 202, 203 money market funds 216, 219 money market instruments 224–5 MoneyMate database 172 Morey, M.R 155 Morey, R.C 155 Morningstar Rating 51–6 comparison of Morningstar Ratings of European funds 52–4 evidence of relation between costs and performance 55–6 time variation in relative ranking of and returns from Danish mutual funds 54–5 Mossin, J 128, 136 multifactor linear model 87–8 multivariate analysis 199–201 Murthi, B 19, 154 Mutual Funds Integrity and Fee Transparency Act 2003 (US) 108–9 Nair, U 140, 144 negative reversed generalized Jensen measure 134 negative screening 195–7 Nesbitt, S.L net asset value (NAV) 44 New Zealand equity retail funds 17–30 empirical findings 26–8 methodology 21–6 New Zealand mutual fund market 19–21 sample 21, 22–4 non-EEC funds 225–6 non-linearity 234, 244 Nortel stocks objectives of investment 27–8, 190 ICDI codes 111, 125 Odean, T 1, 2–3, one-time fees see loads 256 INDEX ongoing fees 47–9 see also expense ratios ordinary investors 34–5 ordinary least squares (OLS) 236, 242–4 Otten, R 65, 88, 110 panel-corrected standard errors (PCSE) 188 panel data technique 4, 11–14 Panetta, F 64 Park test 243 pension allocation (PAL) funds 40, 41, 42 performance hedging 86–7, 98–9, 101, 105 performance idiosyncrasy 63–84 performance persistence Canadian mutual funds 3–4, 9–11, 14 evidence for 169–71 Irish mutual funds 168–82 New Zealand mutual funds 20–1 Spanish mutual funds 235, 236–8, 244–5, 246 performance reversals 171, 176–9, 180 Peterson, S.P 109 Philpot, J 232, 233, 234 PIMCO Funds 161, 162 Pontiff, J 86 portfolio selection problem 128–36 positive screening 195 preference function 140–2 product differentiation 215 prospectuses 227 public authorities, assets issued by 225 publicly available information 227–8 Qian, M 69 quadratic dual utility 139–40, 143, 144, 145, 146 quadratic von Neumann–Morgenstern utility 139, 143, 144, 145 Rahman, S 233 Rangvid, R 56, 59–60, 61 ranking cost rankings of Danish mutual funds 61 German mutual funds 142–6 mean risk analysis 127–51 seasonality and for Spanish mutual funds 101–4, 105 raw returns compared with IRR for Canadian mutual funds 1–16 persistence in for Irish mutual funds 171, 172, 173, 176–7 real-estate funds 213, 214, 219, 226 regional/country specific funds 215 registered retirement savings plan (RRSP) accounts 15 regression analysis 153 Spanish mutual funds 238, 242–4 regulation Danish mutual funds 41–2 German mutual funds 223–8; funds 223–6; governance and transparency rules 227–8; investment companies 223 relative coherence indexes 236, 237 repeat loser funds 171, 173, 176–9, 180 repeat winner funds 171, 173, 176–9, 180 reports 227–8 representative heuristic retirement pensions 228 retirement provision funds (AS funds) 216, 226 return intervals 175–80 Reyes, M.G 185 Rimbey, J.N 233 Rowe, T., Price Capital Appreciation Fund 159, 160 Rubio, G 85, 87 Rudd, A 170–1, 173 S&P 500 index 238, 239, 245 Sardano, D 154 Sarto, J.L 235–6 savings accounts 220 Savona, R 63, 64, 71 scale economies 116, 230–1, 232–4 see also fund size Schadt, R 69, 186 Schechtman, E 139 Scheraga, C.A 154 INDEX Schulman, C.T 233 Schweitzer, M 65 seasonality 85–107 measurement 87–8 and performance 97–101, 105; aggregated analysis 97; analysis of funds with significant parameters for seasonality 99–101; cross-sectional analysis 98–9 and rankings 101–4, 105 results of seasonality analysis 92–7, 105; nonparametric methodology 95–7; parametric methodology 92–5 sector funds 215 securities 224–5 Securities and Exchange Commission (SEC) 108 securities’ index funds 225 security market line 136 Sedzro, K.T 154 Sexton, T.R 158 Shalit, H 138–9, 141, 149 Sharpe, W.F 17, 66, 88, 128, 136, 169 Sharpe ratio 18, 143, 144, 145, 146, 154 DEA and US mutual funds 160, 161, 162–4 generalized see generalized Sharpe measure Spanish mutual funds 235, 237 Shleifer, A 63 short-term interest rates 77 short-term performance persistence 10 Shukla, R.K 232, 233 Silvapulle, P 25 Sirri, E.R 1, size of fund see fund size small firm/January effect 86–7 social and environmental screens 186 Social Investment Forum 183 social involvement 186, 207 socially responsible investment (SRI) see ethical funds Soderlind, P 233 Sovereign Col First State Global Prop Shares Trust 28 Spanish mutual funds 257 seasonality 85–107; database 89–92; empirical results 92–104 size effect 230–48; analysis of results 238–45; data and methodology 235–8; relationship between fund size and performance 231–5 Spearman correlation coefficients 161, 164, 236, 238, 241 Special Investment Funds 40, 41 Special Pension Savings Scheme 60 standard deviation 156 star funds see winning funds Statman, M 185 Stiglitz, J.E 130 stock selection ability of fund managers 170, 180 strategic insight fund objective 190 Strong, R.A 154 style, investment see investment style super-efficiency DEA model 159–61, 162–4 superior funds 134 supervisory boards 211 systematic risk see beta (systematic risk) T-bills 6–8, 238, 239, 245 taxation 38–41 term spread 77 Third Financial Market Improvement Act 1998 (Germany) 216 three-factor performance attribution model 171 thrift institutions 221, 222 time performance persistence and return intervals 175–80 US mutual funds performance and expense ratios 121–2 time-varying conditional alphas 77–82 Titman, S 18, 85, 134, 170, 233 Tobin, J 127, 128, 129, 131 TOBIT censored regression model 27–8 Torre, B 232 258 INDEX Tower TORTIS International Fund 27, 28 transaction costs 18 transparency rules 211, 227–8 Treynor, J 154, 169 Treynor ratio 18, 135, 143, 144, 145, 146 generalized 135–6 Spanish mutual funds 235, 237 TSE 300 index 6–8 Tufano, P 1, turnover 191, 199–201, 204, 205–6 Tversky, A 136 two-fund separation 129–30, 131, 142 UCITS Directive 42 Union 217–18 United States (US) mutual funds 46, 211 data envelopment analysis of efficiency 152–67; data 155–6; empirical results 159–65; methodology 156–9 ethical strength and performance 183–209; databases 188–9; empirical methodology 187–8; ethical strength and financial performance 197–201; ethical strength, investment style and performance 194–7; ethical strength and management variables 201–4, 205–6; measuring ethical performance 186–7; performance and management style 190–4; sample and descriptive statistics 189–90, 191 price and quality 108–26; data 111–17; methodology and main results 117–20; number of funds 112–13; performance and loads 123; regressions by fund category 120–1; regressions by year 121–2; total net assets 113 universal bank system 217 unlisted funds 43–4 value-vs-growth stocks 171, 172, 180, 181 value-weighted portfolio (SWP) 89–92, 93, 94, 96, 97 Van Den Broeck, J 233 Vander Vennet, R 233 Vanguard Health Care Fund 161, 164 Vanguard Wellesley Income Fund 159–61 Vaughan, G 232, 233, 234 volatility 240–1 Volkman, D.A 235, 245, 246 von Neumann–Morgenstern utility functions 128, 136, 138 Vos, E 20 Vos, W 154 Warner, J 88 weighted least squares (WLS) 236, 242, 244 Wermers, R 189 White, H 71 window-dressing 86–7, 98–9, 101, 105 winning funds Canadian mutual funds 9–10, 11–14, 15 repeat winner Irish mutual funds 171, 173, 176–7, 178–9, 180 Wohar, M.E 235, 245, 246 Wuh Lin, J 232, 233, 234 XtraMarked 43 Yaari, M.E 136–8, 140 Yitzhaki, S 138–9, 141, 149 Young, M 19–20 Zanotti, G 64 Zera, S 232, 233 Zickert’sche Kapitalverein 212 ... typical “Danish mutual fund”? 3.4 Expenses and mutual fund investments 3.5 Costs and performance of Danish mutual funds relative to European funds 3.6 Costs and performance of Danish mutual funds. .. greater than median return; loser if less than median 10 RETURNS AND FLOWS IN CANADIAN MUTUAL FUNDS Table 1.4 Short-term performance persistence of mutual funds* Performance No of funds (no of funds) ... including the Journal of Banking & Finance, European Financial Management, Journal of Performance Measurement, Journal of Asset Management, Accounting and Finance, and Managerial Finance In 2002, Roger