There is now extensive empirical evidence showing that fund managers have relative performance objectives and adapt their investment strategy in the last part of the calendar year to their performance in the early part of the year. However, emphasis was put on returns in excess of some exogenous benchmark return. In this paper, we investigate whether fund managers have ranking objectives (as in a tournament). First, in a two-period model, we analyze the game played by two risk-neutral fund managers with ranking objectives.We derive conditions on the set of possible strategies under which the aggregate amount of risk undertaken in the late period is larger than in the¯rst period. In the second part of the paper, we provide evidence that (i) funds have risk incentives generated by ranking objectives, (ii) risk induced by ranking objectives is mainly idiosyncratic, and (iii) risk incentives generated by ranking objectives are stronger for funds ranked in the top decile after the¯rst part of the year.
We revisit the empirical evidence on the tournament hypothesis for the behavior of mutual fund managers provided by Busse [J. Financ. Quant. Anal. 36 (2001) 53]. First, we give analytical expressions for the biases arising in volatility estimates (based on both daily and monthly data) due to first-order autocorrelation effects in daily fund returns. These calculations show that tests of the tournament hypothesis based on monthly data are more robust to autocorrelation effects than tests based on daily data. Second, to address the impact of cross-correlated fund returns on these tests, we provide explicit conditions under which the tests proposed in the literature have appropriate size properties. D 2004 Elsevier B.V. All rights reserved.JEL classification: G11
Performance information dissemination in the mutual fund industryGoriaev, A.P.; Nijman, T.E.; Werker, B.J.M. General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policyIf you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. Abstract This paper studies the dissemination of performance information in the mutual fund industry. We document a hump-shaped lag pattern for the reaction of mutual fund flows to past performance, i.e., we find that very recent performance is less important than performance several months ago. We attribute this pattern to the presence of less sophisticated investors that update performance information only infrequently. In the 1990s the effect is observed for all funds, but especially pronounced for highly marketed funds. For the 2000s, we find a substantial increase in the overall probability of investors timely updating mutual fund performance information. As a result, the hump-shaped flow-performance lag pattern disappeared for all, but the highly marketed funds.Keywords: 12b1-fee, Flow-performance relationship, Investor behavior, Marketing fees. Markets: New Frontiers" at INSEAD, the SIRIF conference "Performance of managed funds: Do fund managers add value?" in Edinburgh, and the seminar at CIRANO Montreal. Part of this research was carried out under a grant of the BSI Gamma Foundation, which is gratefully acknowledged. The paper was previously circulated under the title "The dynamics of the impact of past performance on mutual fund flows". Extensive comments by a referee significantly improved the paper, in particular by suggesting the use of a structural information dissemination model. Performance information dissemination in the mutual fund industryAbstract This paper studies the dissemination of performance information in the mutual fund industry. We document a hump-shaped lag pattern for the reaction of mutual fund flows to past performance, i.e., we find that very recent performance is less important than performance several months ago. We attribute this pattern to the presence of less sophisticated investors that update performance information only infrequently. In the 1990s the effect is observed for all funds, but especially pronounced for highly marketed funds. For the 2000s, we find a substantial increase in the overall probability of investors timely updating mutual fund performance information. As a result, ...
The modern history of the Russian stock market has mirrored ups and downs of the country's transition as well as swings in investor perceptions. In this paper, we describe the evolution of the Russian stock market over its first decade, with particular attention to the risk factors driving stock returns. First, we analyze the development of the institutional infrastructure and dynamics of the market's size and liquidity measured by the number of listed and traded stocks, depositary receipts and IPOs as well as trading volume in the local stock exchanges and abroad. Then, we examine major political and economic events, which influenced the investor perceptions of the country risk and were reflected in stock prices. Finally, we carry out quantitative analysis of risk factors explaining considerable time and cross-sectional variation in Russian stock returns. We document a significant role of corporate governance, political risk, and macroeconomic risk factors, such as global equity markets performance, oil prices, and exchange rates, whose relative importance varied a lot over time.
The Yukos affair, a high-profile story of the state-led assault on a private Russian company, provides an excellent opportunity for an inquiry into the nature of company-specific political risks in emerging markets. News associated primarily with law enforcement agencies' actions against company's managers, not formally related to the company itself, caused significant negative abnormal returns for Yukos. The results are robust and not driven by a few major events, such as the arrests of Yukos' top managers and shareholders. Stocks of less transparent private Russian companies have been more sensitive to Yukos-related events, especially employee-related charges by law enforcement agencies. The situation was different for less transparent government-owned companies such as the world-largest natural gas producer Gazprom: they appear to be significantly less sensitive to these events. Actions of regulatory agencies have had predominantly industry-wide impact, whereas law-enforcement agencies' actions affected shares of large private companies, especially those privatized in the notorious loans-for-shares privatization auctions.
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