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We study how mutual fund managers gain an edge in selecting stocks in an era of globalization. We use textual analysis to construct a measure that captures a mutual fund's offshore exposure concentration through holding US multinational firms. We find that funds with a higher offshore concentration index (OCI) perform significantly better, with the difference in four-factor alpha between the top and bottom deciles amounting to 2.95% per annum. Fund managers’ overweighting of firms with operations in certain countries can be partly attributed to their foreign ethnicity. High OCI fund managers have an information advantage regarding firms’ fundamentals, such as earnings.

This study identifies the factors affecting volunteer retention and engagement. A dearth of research has focused on volunteering for not-for-profit organisations. These organisations are involved particularly in raising funds through public benevolence. There have been rising trends of not-for-profit organisations around the world while the number of volunteers decreases. Information on the factors influencing volunteer retention and engagement is expected to support the management of not-for-profit community services. Therefore, this study uses a case study of a not-for-profit organisation to identify the factors contributing to volunteer retention and engagement. The interview data is analysed using thematic data analysis. Benightedness, communication, management support, volunteer skills and volunteer participation in management decision making are associated with volunteer retention and engagement. These findings are expected to enhance the operation process of not-for-profit Community Fund Management Organisations. Future research is suggested to enhance the management of volunteers in other types of not-for-profit organisations.

In the present work, we study the problem of optimal management of defined contribution pension funds, during the distribution phase, under the effect of inflation, mortality and model uncertainty. More precisely, we consider a class of employees, who, at the time of retirement, enter a life assurance contract with the same insurance firm. The fund manager of the firm collects the entry fees to a portfolio savings account and this wealth is to be invested optimally in a Black–Scholes type financial market. As such schemes usually last for many years, we extend our framework, by: (i) augmenting the financial market with an inflation-adjusted bond, and, (ii) taking into account mortality of the fund members. Model uncertainty aspects are introduced as the fund manager does not fully trust the model he/she faces. By resorting to robust control and dynamic programming techniques, we provide: (a) closed-form solutions for the case of the exponential utility function, (b) a detailed study of the qualitative features of the problem at hand that elucidates the effect of robustness and inflation on the optimal investment decisions.

Efficient prediction of net asset value (NAV) of various investment fund is crucial for both investors and fund management organisations. But prediction of such type of complex financial series is difficult because of uncertainty and influence by political and economical factors. In this paper a novel hybrid adaptive ensemble is developed and its performance is assessed both during training and testing phases using six different NAV data. Further a robust hybrid prediction model is proposed using minimisation of a robust norm and its prediction performance is evaluated and compared with its corresponding conventional ensemble model. Simulation based experimental results demonstrate superior prediction performance of proposed ensemble hybrid model compared to that of three individual component models. Statistical paired t-test is carried out to ensure the superiority of the proposed model in comparison to other three models. Further, it is observed that the proposed robust ensemble model outperforms its hybrid counterpart for all NAVs and for all percentage of outliers up to 10% present in the training samples. The same ensemble and robust models can also applied for efficient prediction of various NAVs for different day’s ahead prediction.

This paper investigates the existence of a calendar anomaly in stock market returns, namely the Halloween Effect, corroborated by Bouman & Jacobsen (2002). According to this, returns during May to October are extremely affected by this phenomenon, and hence are lower in comparison with the respective of November to April. Using a sample of 118 European equity funds for the period 2008–2017, we extend previous research by focusing, for the first time to the best of our knowledge, on the field of mutual funds. We provide evidence of a robust Halloween effect in the European equity mutual funds market, even after controlling for other seasonal anomalies and dividing our sample according to the size of the funds. We also show that an investment based on such a seasonal anomaly can be more profitable and effective than the Buy & Hold Strategy without any risk increase. The significant higher returns in winter months are also resulting from close to zero or negative average returns during May to October as well as high positive returns during November to April. It is finally concluded that fund managers do not seem to decrease their risk exposure to the equity market during summer periods due to the existence of this anomaly.

This paper highlights the “dumb money” effect of Indian retail mutual fund investors who chase funds that subsequently underperform. Retail investors show twice the propensity to chase top past performers; their cash flows are strongly negatively correlated to contemporaneous market returns indicating a contrarian, rather than a “buy and hold” strategy. They make up to 1.3% less in terms of raw returns compared to institutional investors, and the gap is accentuated for funds with superior risk adjusted returns. Collectively, the results reveal that retail investors trade actively with poor timing and fund selection skills despite having access to professional fund management.

We examine the case of a firm holding the option to make an uncertain and irreversible investment. The firm is decentralized and there is information asymmetry between the owner and the investment manager regarding the price of an input (e.g. a key equipment) that needs to be purchased by an outside supplier with market power. We show that the total loss attributed to the information asymmetry has two components: i) the loss in the decentralized firm itself and ii) a negative externality that the outside input supplier endures. We show that the latter is not just a part, but likely the main component of the total loss. Last, we prove that the negative externality is reduced when the principal uses an audit technology in parallel with the bonus-incentive mechanism.

The first contribution we make to research on measuring U.S. mutual fund performance is to show that the cross-section bootstrap procedure used in one prominent publication on this topic can easily accommodate conditional asset pricing models. Using this result, we reestimate US fund performance using the conditional asset pricing model of Ferson and Schadt (1996) for the period of time covering January 1984 to September 2006, the same period of time used in this prominent publication. Unlike most of the current research on the performance of U.S. mutual funds, including the latter research, the estimates of fund performance produced here suggest that some funds, on a net return basis, performed very well over this period. Our second contribution is to update the U.S. mutual fund data to the end of 2018 and then to re-estimate fund performance over this longer period of time. These results show that fund performance, on a net return basis, is poor, confirming the findings of previous research that used data ending before 2018. The third contribution is to provide a detailed guide on how the mutual fund data widely used in this literature is constructed. Until now much of the information required to do this has not been made widely available. Our last contribution is to make some policy recommendations that should better align fund manager incentives with the interests of investors, an alignment which current practices have hindered.

We derive a measure that captures the extent to which common ownership shifts managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager's actions benefit the investor's overall portfolio. Empirically, we show that potential drivers of common ownership, including mergers in the asset management industry and, under certain circumstances, even indexing, could diminish managerial motives to internalize externalities. Our findings illustrate the importance of accounting for investor inattention when analyzing whether the growth of common ownership affects managerial incentives.

We study the effects of market concentration levels on the active fund management industry (AFMI). We introduce a model of an AFMI equilibria in which size, performance, and effort are endogenously determined under a continuum of exogenous market concentration levels. Higher market concentration (for a given number of funds) leaves more unexplored investment opportunities and allows managers to more efficiently use industry resources, making marginal managerial effort more productive in creating alphas. However, with higher market concentration, managers can get higher compensation for their effort, causing a higher opportunity cost of effort. We find that in equilibrium, higher market concentration levels induce higher net alphas and AFMI size (the ratio of assets under active management to total wealth) if and only if gains from better investment opportunities exceed the consequences of higher managerial costs. We specialize the model to allow endogenous concentration levels and, using the Herfindahl-Hirschman and other indices, empirically study its key predictions in the United States equity AFMI in the last four decades. We find that, on average, AFMI net alphas and AFMI size increase with market concentration. Given the current low market concentration in the U.S. AFMI and with no change in managerial productivity/effort opportunity costs, an increasing market concentration is likely to increase both AFMI net alphas and size. We also look at equilibria with colluding fund managers and examine AFMI’s direct benefits.

Global open-ended mutual funds are an increasingly important source of capital for emerging market economies (EMEs). Mutual funds, however, have a greater propensity than other overseas investors to change their holdings of EME bonds following changes in macroeconomic conditions. This paper considers why. We use a novel methodology – underpinned by data on individual security holdings – to distinguish between the two reasons why a fund's holdings of EME bonds might change: (i) the amount invested in the fund changes and (ii) the fund manager changes its portfolio allocations. We find that funds' responsiveness to changes in global macroeconomic conditions - "push factors'' - is explained by investor flow decisions. Conversely, funds' responsiveness to changes in local macroeconomic conditions – "pull factors'' – is explained by manager reallocation decisions. We also identify other institutional factors which impact reallocation decisions: changes in their leverage, changes to their benchmark, and changes in risk appetite (funds reallocate towards safer EMEs when global risk increases).

The paper introduces a daily index for expectations of returns based on tweets that express a directional prediction about the stock market index. I develop a dictionary that includes lexicon of traders to identify and classify opinionated tweets. The results show that (1) the Twitter Expectations of Returns Index (TERI) is positively correlated with weekly changes in net long position of investment managers, (2) expectations index of high followers accounts predicts stock market returns, and (3) private information is the primary source of return predictability.

An analysis of mutual-fund-level flow data into EM bond and equity markets confirms that different types of funds behave differently. Bond funds are more sensitive to global factors and engage more in return chasing than equity funds. Flows from retail, open-end, and offshore funds are more volatile. Global funds are more stable in their EM investments than “dedicated” EM funds. Differences in the stability of flows from ultimate investors play a key role in explaining these patterns. The changing mix of global investors over the past 15 year has probably made portfolio flows to EMs more sensitive to global financial conditions.

In this paper, we study an optimal investment strategy for a fund manager of a DC pension who wants to maximise the expected exponential utility of the terminal wealth in a market where the stock is a jump diffusion process. Using stochastic control theory, we derive a Hamilton–Jacobi–Bellman equation. Since the market is not complete, the optimal strategy cannot be found in closed as is done in most literature on DC pension plans. We characterise the optimal strategy as a solution of an integro-ordinary differential equation which can easily be solved by a simple numerical method. We investigate the impact of different jump parameters through numerical experiments using a familiar distribution of jumps.

Individual stock trend prediction is extremely valuable for investment management. Previous studies mainly focused on proposing effective approaches to make profits. However, there is an ineffectiveness in model evaluation due to the inconsistency between model’s performance and profitability. We name this inconsistency profit bias. In order to address the profit bias in model evaluation, this paper proposes a new effective metric, Mean Profit Rate (MPR). The effectiveness of metric is measured based on the correlation between the metric value and profit of the model. Experiments on five stock daily index data among four countries show that MPR outperforms the classification metrics in correlating to profit. In view of these findings, we suggest that MPR is a more effective metric than the classification metrics in stock trend prediction.

This paper presents an application of fuzzy-set qualitative comparative analysis (fsQCA) to frame the conditions that lead to over- or under-performance of mutual funds. Building upon a considerable library of research on fund returns, the study uses fsQCA to affirm and extend earlier discoveries. Considered here is fund performance relative to Morningstar ratings, features of the funds themselves, as well as characteristics of the fund managers. Results suggest that positive Morningstar and analyst ratings are necessary conditions, on average, for funds to generate value according to the Jensen's alpha ratio. Just over seven percent of the cases imply that funds have attractive Sharpe ratios and higher returns when the funds have lower management fees and lower ongoing fees. Likewise, larger funds with better Morningstar ratings are associated with improved Sharpe ratios and better returns, often where the fund manager has not been managing the fund for a long period.

Many US states have a single cutoff date for school entry, meaning that some children are older than others when they begin kindergarten. We show that this variation in birth months is associated with differences in adult labor market outcomes in the mutual fund industry. Relatively older managers (i.e., those born just after the cutoff) make better stock selections, and their funds outperform their younger peers’ funds by 0.48% per annum. This difference is linked to increased confidence. Survey respondents judge relatively older managers as appearing more confident in photographs, and these managers display more confident behavior: making larger bets, window dressing their holdings less, and securing more fund flows conditional on performance.

Why do institutional investors improve firms’ engagement in corporate social responsibility (CSR) investments? We show that CSR activities are driven by institutional investors with long investment horizons, and that this is due to the reputation insurance that CSR spending provides. Specifically, longer horizon investors benefit more from such insurance, and so do their agents, the investment managers that interact with portfolio firms. Additional tests show that this positive relationship between shareholder horizons and CSR is enhanced by market myopia, managerial agency risks, and motivated investors. We address the endogeneity concerns by employing Russell 1000/2000 index switches as sources of exogenous variation in shareholder investment horizons. The influence of shareholder horizons on CSR is also related to social norms. Our main results hold for all but one category of CSR and appear to be driven by CSR strengths.

Predicting the downside risk of a hedge fund is the foundation of risk measurement. These predictions also provide conditions that can be used for designing and implementing risk prevention measures. Hence, this paper proposes a big data hedge fund downside risk evaluation model based on a multi-objective neural network. First, two evaluation indexes are defined. Then, local search is applied to merge parent and descendant populations. Only those individuals from the Pareto front are optimized. Experimental results suggest that this model and method is feasible and valid. Specifically, the VaR model is unable to estimate the possible extreme risk of a hedge fund. In contrast, the CVaR model can accurately measure the risks under extreme market conditions. However, a combination of VaR and CVaR can help a fund manager avoid extreme risks to a hedge fund.

The Enterprise Resource Planning (ERP) system in the last few years has become an important thing for companies to manage business easily and integrated. Likewise, PT Semen Indonesia Distributor, one of the subsidiaries of Semen Indonesia Group, which has implemented an ERP system namely Waru Abadi Information System (SIWA) since 2017. After 2 years running, they took the initiative to measure the ERP system investment performance that they have issued using the Val IT framework 2.0. As we have known, Val IT framework has 3 domains, namely Value Governance, Portfolio Management, and Investment Management. There are 3 stages carried out by researchers, including data collection by means of in-depth analysis of 5 influential people in IT investment decision making, data validation, and maturity level justification. The results of this study are the maturity level of the ERP system implementation at PT Semen Indonesia Distributor reaches 3.79 (scale 5) based on the Val IT framework 2.0.

Globally, 1.7 billion adults still lack access to formal financial services, with a large percentage living in South Asia and Sub-Saharan Africa. Current financial inclusion strategies seek to enhance these vulnerable populations' access to financial services with the aim of building more inclusive and financially resilient societies. With the Fintech movement and over 67% of the world's population having a mobile phone, digital financial literacy is gaining momentum. Nevertheless, negligible research has measured its impacts on financial behavior. This study uses data from the InterMedia Financial Inclusion Insights (FII) surveys for seven South Asian and Sub-Saharan African countries to investigate the relationship between multidimensional measures of financial and digital literacy and resilience-building financial behaviors, including saving, borrowing, and risk management. The findings consistently show that both financial and digital literacy are key factors to building inclusiveness and financial resilience. Heterogeneities are identified across regions, as well as for poor, rural, and female households. A robustness check is also included to address potential endogeneity. The results emphasize the need to redefine traditional financial literacy to include digital literacy, with important implications for countries considering both as a dual approach to improving households' long-run financial resilience.

I construct a measure for how good a time period was for stock pickers selecting from a benchmark index. A market is better for skilled stock pickers when it is difficult for random selection to do well, in particular, in years where more stocks underperform than outperform the benchmark return. I apply the measure to the S&P500 index for 2000 through 2020. The best five years for skilled stock pickers were 2020, 2007, 2018, 2017, and 2015, in that order, while the worst five years for skilled stock pickers were 2001, 2000, 2002, 2004, and 2010, respectively. Large cap equity manager underperformance has been especially bad in years that would have been good for skilled stock pickers, further emphasizing the well-known lack of stock-picking skill among most large cap U.S. equity managers.

In this paper, I propose a theory that connects a Private Equity (PE) fund's valuation, a PE fund manager's expected ability and the likelihood of cross-border acquisitions. Using a model of costly-state verification, I show that an increase in a PE fund's valuation driven by economy-wide improvements raises the likelihood of a cross-border leveraged buyout (LBO) compared to a domestic LBO. Consistent with the model's key prediction, I find empirically that an increase in a PE fund's valuation, which captures the fund manager's expected ability, is associated with higher probability of cross-border acquisitions. The empirical estimates indicate a one-standard deviation increase in valuations, equivalent to approximately 5.2 percent of a fund's size, leads to at least an 11.9 percent increase in the predicted number of cross-border buyout deals compared to domestic LBOs.

In this note we prove a simple formula to compute the Incremental Volatility, i.e. the change in the portfolio volatility due to the removal of one asset from the portfolio. The common practice adopted in the literature and in the industry is to avoid the full recalculation of the portfolio volatility, but rather to use a first order approximation based on the gradient of the portfolio volatility. Here, we introduce a new exact formula that does not require to recompute the volatility of the new portfolio, but exploits quantities computed previously. Using the new formula, we can easily compute the effect on the portfolio volatility of any arbitrary change in the weigth of one asset as well as to determine the optimal trade, i.e. the weight change that allows the maximum reduction in the portfolio volatility. Due to their striking simplicity, the new formulas provide important portfolio analytics of immediate use in the asset management industry.

In this article we describe the current state of the asset management industry, what defines a modern asset manager and what prerequisites he needs to be successful. After all, the asset management industry has been facing fundamental challenges for years, which we will explain in detail. In doing so, we break away from the "classic" questions and show which points are really at stake. Technology, new data sources and artificial intelligence are changing the asset management industry for the better. Further success factors for the future are a modern work culture and clear and simple communication. We explain the five points in detail. They offer the ideal opportunity for a start-up to lead the modernization of the asset management industry. Four pillars are the prerequisite for a successful implementation: a combination of financial know-how, statistical and computer science know-how as well as many years of industry experience. We explain the reasons using an example.

Based on a sample of 114,098 investments committed by 12,258 limited partners into 20,473 private equity funds, we study an international home bias in fund manager selection in private equity. We find that limited partners overweigh their investments with fund managers domiciled in the same geographical region by 45% on average. The home bias in local fund manager selection holds across investor types, fund characteristics as well as market regions. Investments committed with locally domiciled fund managers are not only being overweighed, but also perform better than investments with fund managers domiciled in foreign market regions. We argue that limited partners benefit from information advantages and better fund access when selecting private equity funds within their home market region.

This paper measures the predictive power of buy-sell-and-hold recommendations made by students engaged in the management of a student-managed investment fund (SMIF). In their roles as analysts and portfolio managers for the SMIF, undergraduate students were required to follow traditional security analytical techniques such as discounted cash flow analysis and comparative valuation that were taught in the introductory investment management class, which is a pre-requisite. We evaluated the stock price performance of the stocks which the students analyzed across multiple holding periods, following student recommendations to buy, sell, or hold. We also compared the recommendations of the student-analysts to the contemporaneous recommendations of sell-side equity analysts.

In this paper, we launch a practical modus-operandi for the assessment of potential market risk exposures for financial trading portfolios by providing an investment management perspective from the 2007-2009 global financial crisis. This proposed tactic is based on the renowned concept of Liquidity-Adjusted Value-at-Risk (LVaR) along with the innovation of a risk-engine algorithm that can estimate LVaR for both long and short-sales positions.

Do environmental, social, and governance (ESG) and impact investing practices in their current forms provide investors with sufficient tools to play a meaningful role in “Building Back Better” following the COVID-19 crisis? Many of our existing ESG and impact investing frameworks focus on issues at the portfolio company level, but they do not take into account potential negative impacts from capital structures and investors’ influence in shaping them. In this paper, the Predistribution Initiative (PDI) explores how the growth of institutional investors (asset owners and allocators) and certain asset allocation strategies can be in conflict with ESG objectives. The conflict materializes in various interconnected ways, particularly from institutional investors’ role in increasing global debt levels and fund manager and corporate consolidation, which in turn can create barriers for diverse fund managers and entrepreneurs, jeopardize quality jobs, erode the quality and affordability of goods and services, increase asset class correlations, reduce diversification opportunities, and ultimately fuel economic inequality and market instability. For long-term, diversified institutional investors, or “Universal Owners” of the market, these dynamics eventually translate into lower financial returns. For workers and communities, these dynamics translate into greater precarity and inequality. This paper encourages such investors to consider how their activities may contribute to these issues and how they can improve their own practices to better manage systemic and systematic risks. We review the issues and then propose several preliminary paths toward solutions that we intend to workshop and fine-tune with investors and other stakeholders. Potential solutions focus on diversifying asset allocation to more regenerative investment structures and asset classes, building an enabling environment through adjustments to team incentive structures, performance reviews, benchmarking and valuation methodologies, and field-building.

The rise of a small group of investment (asset) managers with an enormous potential to influence corporate decision-making has reinforced attention to shareholder stewardship as one of the pillars of corporate governance. But weak incentives to invest in shareholder oversight and limited resources confine voting and engagement by large investment managers. According to an influential argument, activist shareholders can offer a solution by supplying large investment managers with company-specific information. This paper advances a thesis that stewardship efforts of large investment managers are unlikely to be informed by activist campaigns and offers empirical evidence and illustrative case studies supporting this claim. The paper argues that large investment managers and hedge fund activists – the most prominent group of activist shareholders – have different visions of stewardship with little scope for interactions. For large investment managers, general corporate governance and sustainability themes have priority over the traditional topics of activist demands targeting business and operating matters. Consistent with the different visions of stewardship, data from the FTSE 350 companies show that associations between activist demands and the voting behavior of the top investment managers vary based on activist types and demand topics. Activist demands initiated by hedge funds and on business and operating matters receive less support. Importantly, differences between fund groups with predominantly active or passive indexing strategies in the likelihood of opposing corporate managers in activist targeted firms are minimal. These findings offer better understanding of institutional investor stewardship and have important practical implications for building regulatory frameworks for effective stewardship.

We study the effects of quantitative equity investing, an increasingly popular investment style, on financial market quality. Within a noisy REE model of strategic speculation with two informed market participants, we define discretionary investing as fully strategic trading and quantitative investing as partially or fully myopic via its reliance on a backtested trading strategy. Growth in quantitative investing is modeled as both the introduction of and the greater backtest adherence by an informed speculator. The introduction of an additional speculator generally benefits financial market quality. The effect of greater backtest adherence depends on whether it leads to more or less aggressive trading than discretion, the former improving, while the latter worsening market quality. If it is more aggressive, market quality broadly benefits with greater quantitative investing; if it is less aggressive, market quality deteriorates.

Financial Technologies have transformed banking and financial services operations worldwide over the last decade. It has simplified the customer's and banking authorities' lives significantly. The paper reviews briefly the most commonly used financial technologies (Fintech) – Artificial Intelligence, Machine Learning, Blockchain, Big Data and its applications in Banking and Financial services industry (BFSI). Fintech applications such as - Fraud detection and prevention, Portfolio management (Robo-advisors), Loan underwriting, Robotic Process Automation (RPA), Digital Payments, Insuretech and Regtech etc. have been explored in the paper in the context of BFSI. It also studies the impact, opportunities and challenges of financial technologies for BFSI. Further, the paper studies udy the experiences of leading Indian Banks and Financial Services organizations in respect of adoption of financial technologies. The study presents the experiences of Fintech adaptations by three leading Indian Banks – ICICI, HDFC and SBI. The study highlights that the revolution Fintech set in motion has had a profound impact on traditional banking and financial service sectors in terms of operations. Originally used for backend services, it is currently applied in many additional applications such as online payments, mobile payments, fund management, and stock trading. The study concludes that Fintech has changed the financial ecosystem and transformed the basic process of payment methods via the use of digital technology.

We document a gender-based attention effect in the sensitivity of mutual fund flows to fund performance using individual-level fund data from a fintech platform in China. Investors increase (decrease) flows to funds following positive and strong (negative and weak) prior- month performance. However, although there is no significant difference in the performance of male and female managers, the sensitivity effect significantly weakens if the fund manager is female. The effect persists after controlling for managerial characteristics and fund objectives, as well as individual investor fixed effects. Simply put, investors react less to the performance of female fund managers.

This is not your grandfather’s SEC anymore. Rapid technological change has resulted in novel regulatory issues and challenges, as law and policy struggles to keep pace. The U.S. Securities and Exchange Commission (SEC) reports that “the U.S. capital markets are the deepest, most dynamic, and most liquid in the world. They also have evolved to become increasingly fast and extraordinarily complex. It is our job to be responsive and innovative in the face of significant market developments and trends.” With global markets increasingly interdependent and interconnected and, “as technological advancements and commercial developments have changed how our securities markets operate, our ability to remain an effective regulator requires us to continuously monitor the market environment and, as appropriate, adjust and modernize our expertise, rules, regulations, and oversight tools and activities.” The success or failure of our society, jobs of a global workplace, and the ability of families everywhere to feed, clothe, and house themselves depends on the success of the SEC in providing fair and open access to capital through efficient markets. Our paper proceeds in eight parts. First, we explain the genesis and role of the Securities and Exchange Commission (SEC). Second, the definition of and what exactly constitutes a “security” is provided. Third, the securities issuance process is discussed. Fourth, we focus our discussion on The Division of Enforcement. Fifth, we discuss corporate governance and the SEC. Sixth, we explore the difficult task of governing during times of rapid technological change. Seventh, we examine contemporary issues that face the Commission. And last, we conclude.

The impact of the COVID-19 Pandemic has affected the whole of human life, including the world capital market and all its problems. COVID-19 has influenced trading patterns in the capital market, both in terms of trade rules that are superstructure and capital market infrastructure itself. Indonesia's economic turmoil is not only caused by the pandemic COVID-19, but also by several financial scandals such as the Jiwasraya, Asabari and several moral hazards by stock market brokers. The moment of capital outrage at the moment is like a honeymoon in stock trading that occurs during an extreme event. Some events that have caused the world capital market to fall deeply, are the Black Tuesday 1988, the monetary crisis in Indonesia and Asia in 1998, the global financial crisis in 2008, and most recently the pandemic COVID-19 phenomenon that began in 2020. The extent to which Buffettology's role in investment decision making by Investment managers in the Indonesian capital market is the aim of the author's research. The main finding of this study is the prospectus of vigilant leader company as a determinant in making investment decisions both in normal situations and in the midst of a pandemic. This research will be very essential for investment and financial decision makers and for the Financial Services Authority (OJK) in Indonesia. This is because the wrong decisions of investment managers, as well as the company's performance with a stock price characterized by Roller Coaster (called saham gorengan) is a special concern for OJK to take decisive action for the sustainability of a healthy and conducive Indonesia Capital Market for investors.

We check for performance persistence of hedge funds in terms of market price average returns in each style category. In addition, we use regression models to test market timing ability. We use a sample of 773 hedge funds both alive and dead to avoid survivorship, self-selection and backfill bias. We include in our sample funds that have stopped to exist or merged with other funds. Positive returns indicate that the manager is skillful in terms of share picking ability. In addition, I am going to test for market timing ability to measure if the fund manager can outperform the market index. The market timing ability is verified using the Treynor – Mazuy (1966) model and denoted by the coefficient gamma. If the coefficient is positive this indicates that the manager has superior timing ability. Based on my regression results, all out of the nine style sectors display a coefficient of market timing ability that is positive and not statistically significant at 5% level. No sectors showed superior timing market ability. Negative values represent inferior or neutral managerial performance. None out of the nine style categories display negative figures. All nine style sectors display positive figures for the share average returns. Positive returns indicate that the manager is skillful in terms of share picking ability.

The Cambodian capital markets have come a long way considering that the Paris Peace Agreements, which ended the nation’s civil war, were signed only in 1991. Strong GDP growth (10.8% annually between 2000 and 2018), a dollarized economy with free movement of capital, and a policy consensus favoring investments should have spurred the rapid development of a securities exchange in Cambodia. The first equity listing on the Cambodian Stock Exchange (CSX), however, did not take place until 2012. Currently in Cambodia, seven companies are listed on the main board, and another six companies have issued eight bonds. The CSX is still small in size compared with its Asian neighbors’ bourses. Its development is also behind schedule given the urgent need of local corporations to find cheap and convenient sources of funding. Stocks and bonds on the CSX have had comparatively low returns historically when compared with less risky bank deposits or higher returns from real estate. Mindful of these challenges, the Royal Government of Cambodia has implemented a broad range of measures to support faster capital market development. Educating both investors and corporations, introducing accounting standards and audit requirements, and licensing such market actors as fund management companies, securities brokers, and custodian banks, to name a few, will provide the infrastructure and support Cambodia needs for long-term growth. Listing private companies with exciting growth prospects will be key in renewing interest among potential investors in Cambodia. Likewise, new investment choices such as REITs, private equity, and mutual funds should spur further interest. The creation of a government bond market will be critical as well in order to attract institutions that crave safe and long-dated assets for asset–liability management purposes. All of these factors combine for a constructive view of the prospects for Cambodian capital markets.

We study whether and how sell-side research affects the agency issue between asset managers and their clients. We show that even if sell-side research alone does not generate conflicts of interest, it can exacerbate the moral hazard problem of asset managers. Imposing transparency on the use of sell-side research, as the recent regulation MiFID II does, helps investors alleviate this negative effect. Forcing the managers to absorb sell-side research costs has a similar effect. Our model explains the empirical findings on how transparency affects the supply of buy-side research, the demand for and the quality of sell-side research. This paper contributes to improving the organization of the asset management industry and the debate on recent regulations on sell-side research.

The Your Future Your Super reforms introduced in June 2021 include an investment performance test (YFYSPT) for MySuper products initially, but the Australian Prudential Regulatory Authority (APRA) intends to extend the YFYSPT to other superannuation products from 2022. This paper assesses the YFYSPT from the perspectives of achieving market efficiency, providing information that members of superannuation products can use to make informed decisions, and better aligning the member-agent interest. The paper also analyses the sources of risk that might cause MySuper products to fail the YFYSPT. The paper concludes that the YFYSPT is likely to improve market efficiency and reduce the misalignment of members’ and investment managers’ interests but fails to provide a meaningful basis for members to make informed decisions. There are also technical issues in the formulation of the YFYSPT. The major risk of failing the YFYSPT arises from the use of active investment management that does not produce returns net of investment and administration fees and taxes in excess of the YFYSPT indices.

The Australian Prudential Regulatory Authority (APRA) has introduced for MySuper products a publicly available comparison of investment performance over three-year rolling periods and will be introducing a similar longer-term comparison under the Your Future Your Super Performance Test. The investment performance will be compared to a reference portfolio. This paper considers the effect of holding illiquid assets and “active” investment management as part of a superannuation fund portfolio and concludes the APRA tests may have undesirable consequences for superannuation fund members.

Given the tremendous growth of factor allocation strategies in active and passive fund management, we investigate whether either asset allocation strategies based on factors or sectors provide investors with a superior portfolio performance. Our focus is on comparing factor versus sector allocation as some recent empirical evidence indicates the dominance of sector over country portfolios. We analyze the performance and performance differences of sector and factor portfolios for various weighting and portfolio optimization approaches including ‘equal-weighting’ (1/N), ‘risk-parity’ (RP), minimum-variance (MinVar), mean-variance (MV), Bayes-Stein (BS) and Black-Litterman (BL) by employing a sample-based approach in which the sample moments are the input parameters for the allocation model. For the period from May 2007 to November 2020, our results clearly reveal that, over longer investment horizons, factor portfolios provide relative superior performances. For shorter periods, however, we observe time varying and alternating performance dominances as the relative advantage of one over the other strategy depends on the economic cycle. We find that during “normal” times factor portfolios clearly dominate sector portfolios, whereas during crisis periods sector portfolios are superior offering better diversification opportunities.

Beta is the most widely used measure of risk exposure for most investment managers when reporting risk exposure to their investors. We propose a conceptually simple method for estimating Beta, and its associated results, that has the benefit of using exactly the same calculations as traditional Beta but using a brute-force approach comparable to Value-at-Risk methods based on historical simulation. The Beta is calculated for the returns of a user-defined (PARTIAL) sample of the data. The result is a Beta exposure value that is more stable and more representative of the expected risk but using the standard (NATURAL) calculations that have made Beta so familiar and easily available. The Partial Natural Beta is being used successfully by both investment managers and institutional investors.

I explore whether managers of Environmental, Social, and Governance (ESG) funds differ in their disclosure behavior vis-a-vis conventional fund managers. Consistent with ESG fund investors having longer investment horizons, I find that ESG portfolio managers engage in less opportunistic disclosure activities than their conventional fund managers counterparts. Interestingly, managers of ESG and conventional funds have similar portfolio turnovers, despite the conventional wisdom that ESG investors are more long-term oriented. Notably, I find no evidence that investment management firms endogenously assign portfolio managers to ESG and conventional funds based on managers’ characteristics. Overall, my results suggest that the preferences of ESG investors affect ESG managers' willingness to engage in opportunistic trading without significantly affecting their real portfolio decisions.

This paper describes a methodology extension for decomposing non-linear portfolio risk by fund manager which we refer to as "Manager Component Value-at-Risk." The approach is well suited to funds holding any asset class or instrument type including derivatives. This decomposition approach is additive and fully captures the correlations between instrument returns and thus is well suited for decomposing risk by manager. We provide an example from a representative CTA portfolio that demonstrates superiority of the decomposition approach over other common practices for risk decomposition. The core methodology is implemented in R and made available to readers.

We introduce continuous-time rational models of concentration in the active fund management industry, where managers with heterogenous dynamic unobservable abilities compete for investments of risk-neutral or risk-averse investors. Fund flows increase with managers’ inferred abilities, inducing endogenous dynamic distribution of fund sizes, thus, dynamic industry concentration [measured by the Herfindahl-Hirschman Index (HHI)]. In equilibrium, increases in managers’ inferred abilities that are sufficiently larger (smaller) than others’, increase (decrease) the HHI. Changes in inferred abilities affect the HHI dynamics and curvature and, consequently, funds’ performances and sizes. These combined effects explain corresponding stylized facts and offer guidance for empirical studies.

The existing literature of performance persistence of hedge funds is mixed due to different methodologies and findings. We use a comprehensive sample of 736 hedge funds to test performance persistence in different time periods. The total sample includes 773 hedge funds. We sort funds into rank portfolios based on past performance. A positive and statistically significant alpha indicates a skilled fund manager whose decisions add value to the fund. On the other hand, negative alpha values or statistically insignificant values represent inferior or neutral performance of the manager. The results show short-term performance persistence over one year period for winners. Nine style categories show a positive and statistically significant alpha at the 5% significance level and market timing ability for winners the first 12 months. We did not find any evidence of performance persistence over the long-term. All the remaining years such as the third, the fifth, and the twelfth show insignificant alpha and market timing ability for both winners and losers. The persistence of winners could be justified by the skill of the fund managers and market timing ability to predict the movement of the market.

This article studies sin stocks on the European market over the period 2006–2020. In addition to stocks in alcohol, tobacco, gambling, and defense sectors that are traditionally considered sin stocks, we analyze stocks in carbon-intensive sectors that have newly evolved as sin stocks, such as oil and gas, metals and mining, uranium, and coal. To investigate the return performance of sin stocks, we run time-series regressions with factor models and Fama–MacBeth cross-sectional regressions. Our results suggest that there is no robust sin premium for new sin stocks or traditional sin stocks, either in comparison with the market or their peer stocks. Our analysis on ownership characteristics shows that investors in sin stocks are mainly investment managers, corporations, and individuals. While new sin stocks are popular among institutional investors, traditional sin stocks are less held by norm-constrained investors. Finally, our subsample analyses indicate some potential changes in the market perception of the new sin stocks after the Paris Agreement.

The Indian capital markets have experienced a significant structural transformation since India opened its economy to the world in the 1990s. Today it boasts two of the world’s largest stock exchanges—NSE and BSE—and is considered one of the most preferred investment destinations for international capital, as evidenced by continued growth in foreign investments. In addition, the asset management industry has seen massive growth, with increasing interest from domestic retail investors. These developments can be attributed to a series of supportive steps undertaken by the Indian government, regulators, and policymakers, which adopted a more business-friendly stance. That said, India is still far away from tapping the full potential that it can achieve. Its fixed-income and commodity markets are still shallow, with fewer incentives for market participants. Moreover, the exchange-traded fund industry is still in its infancy when it comes to investor awareness and market structure. In order for Indian markets to achieve their full potential, stakeholders need to come together and take steps that can remove bottlenecks and ensure that the huge amount of savings available in the economy is harnessed sufficiently to power the growth engine, as the Indian economy grows toward achieving the $5 trillion target.

Piotroski’s (2000) Fscore has become increasingly important to investment managers and analysts as a simple measure of a company’s financial strength. However how it changes over time, and in particular how it reacts under different economic conditions, has not been considered until now. It is evident from the literature that macroeconomic condition and business cycle affect corporate valuation through affecting stock prices. Macroeconomic conditions also affect corporate liquidity, cash flow, profitability, efficiency, financing and capital structure. Therefore it is highly likely that changing macroeconomic conditions will affect the Fscore by affecting corporate profitability, liquidity and efficiency. We examine the extent to which the Fscore is affected by these macroeconomic changes or shocks. It is important that the Fscore, as a simple and powerful measure of predicting corporate financial strength, should give similar results in any state of the economy so that investors can benefit by using it. We find that macroeconomic conditions have a strong and significant effect on the Fscore; indeed during contractionary episodes they have more effect than firm-level variables. Investors should therefore be cautious in applying the Fscore equally under different macroeconomic conditions.