Selecting Mutual Funds
Friday, Jan. 4, 2019 10:15 AM - 12:15 PM
- Chair: Russ Wermers, University of Maryland
Is There a Home Field Advantage in Global Markets?
AbstractInternational equity mutual funds that hire managers from a country linked to the fund`s geographic mandate exhibit a strong bias to invest in stocks of that country. These funds with “home-biased managers” attract disproportionally more flows, on average, that intensify during periods of higher economic uncertainty in that country. Stocks domiciled in countries in which the fund has a home-field advantage outperform those held by other funds without home-biased managers, but with investments in the same countries. We interpret this new finding as evidence of an information-based channel through which the home-bias phenomenon may be revealed and link it to theories that emphasize the role of an informational endowment advantage.
Distortions Caused by Asset Managers Retaining Securities Lending Income
AbstractMutual funds and ETFs that lend their shares to short-sellers often retain a fraction of the resulting fees rather than returning them to investors, incentiving them to overweight stocks with high lending fees. In a heterogeneous agent model, we show this incentive distorts equilibrium portfolio choices, fund performance, and asset pricing. Our model explains many empirical patterns: lending funds overweight high lending fee stocks, underperform, and charge lower management fees than non-lending funds; lending fees negatively predict future fee-exclusive and fee-inclusive stock returns; and conditions affecting lending markets often have no effect on equilibrium share prices.
Cross-Sectional Alpha Dispersion and Performance Evaluation
AbstractOur paper explores the link between cross-sectional fund return dispersion and performance evaluation. The foundation of our model is the simple intuition that in periods of high return dispersion, it is easier for unskilled managers to disguise themselves as skilled. Indeed, in a world of little or no dispersion, it is obvious who is skilled and unskilled. Rational investors should then apply higher discounts to performance in high dispersion environments. Our empirical
results support this prediction. Using fund ow data, we show that a one-standard deviation increase in return dispersion causes a 11%-17% decline in ow-performance sensitivity.
- G1 - General Financial Markets