Purpose -The purpose of this paper is to examine the predictability of the US-based international mutual fund returns by investigating 2,479 daily observations for all categories of international equity, bond and hybrid mutual funds. Further, trading strategies are proposed and tested under different scenario including a proposed regulation by the Security and Exchange Commission (SEC). Design/methodology/approach -The sample is split and the initial sub sample is used to investigate return patterns of international funds and to develop trading rules based on the predictable return patterns. Trading rules are then tested on the holdout sample. Findings -Empirical results demonstrate statistically significant predictabilities. Various trading strategies show that the returns of both load and no-load funds are economically significant beating a buy-and-hold strategy. Empirical findings are consistent across the fund categories irrespective of sizes and styles. The tested strategies are profitable even with various limits on frequency of trading, minimum holding periods and even under a recent SEC's proposed regulation. Further, possible contracting and regulatory changes are proposed to improve the efficiency in the mutual fund industry. Originality/value -The results confirm previous findings of statistically and economically significant regularities from trading strategies that involve following the US markets. A test of SEC's proposed regulation documents that short-term investors may benefit from active trading strategy even if the SEC's rule is implemented.
Predictability and exploitability of daily anomalies in returns for US-based international mutual funds is this paper's focus. Market timing strategies examined include simple weekend, complex weekday, and restricted weekend strategies, and those related to serial correlation in foreign indexes. All are compared to a buy-and-hold strategy, are adjusted for risk, and include investments in money market funds when called for, in contrast to most other studies. The 123 funds examined are in nine fund categories, including Europe, Asia, Japan, Latin America, and emerging markets and combinations thereof. These are matched to foreign market indexes that approximate their country or regional composition using country indexes or Morgan Stanley Capital International (MSCI) indexes. Over the daily period January 4, 1993 to October 31, 2002, the foreign indexes are tested for day-of-the-week and serial correlation effects. Trading strategies using these effects with the most related foreign indexes are imposed on the funds and the equally weighted portfolio of funds in each category. Superior performance is associated with the serial correlation strategy, when compared to buy-and-hold, as well as simple weekend, complex, and restricted weekend strategies. These also perform better than a buy-and-hold, with the complex being best. All results are robust to Sharpe, Treynor and Jensen measures of performance. The strategies, especially those based on serial correlation, are also superior in terms of Treynor-Mazuy and Henriksson-Merton market timing models. Further, our results are robust to different time periods surrounding the 1997 Asian currency crisis and September 11, 2001, different hold-out samples, and to sub-samples of load versus no-load funds. Copyright (c) 2010 Blackwell Publishing Ltd.
PurposeThe purpose of this paper is to shed light on the causes of the 2007‐2009 mortgage crisis, liquidity crisis, stock market volatility in the USA and their spillover effects on the global economy.Design/methodology/approachThe paper critically reviews the 2007‐2009 financial crisis from both academic and practitioners' viewpoints.FindingsThe paper explores how the liquidity crisis has evolved with the advent of poorly supervised financial products, especially the credit default swaps and subprime mortgage loans. Further, it analyzes the laxity in regulations that encouraged high financial leverages, shadow banking system and excessive stock market volatility and worsened the recent financial crisis.Originality/valueThe implication of this paper is to understand numerous policy reforms that will help the global capital markets to be more transparent and less vulnerable to systematic risks; the suggested policy reforms may also help to prevent such financial calamities in the future.
The chapter on goods and services uses water as an illustrative example of the split between economics and human rights. Despite the fact that water is essential to human survival, more than a billion people worldwide do not have access to it. Branco cites recent examples in which privately owned water companies raised rates by 400 percent (Manilla) and 600 percent (LaPaz). The market fails to provide water as a human right because it does not distinguish among uses, such as leisure vs basic human needs. In addition, the market is not accountable to anyone; in contrast, the government can be held accountable in courts or elections. He concludes that if the right to water is to be guaranteed, decisions concerning its distribution belong to those affected by the distribution, which means some degree of public management.Branco provides contemporary and historical context to his analysis, citing contemporary economists such as Sen, Rodrik, Barro, and Krugman, historical figures such as Hayek, Walras, Ricardo, Marx, and Schumpeter, as well as sociologists and philosophers. He also provides a good deal of data and specific examples to support and illustrate his points.The author is successful in demonstrating that the market economy does not promote human rights, but that is a conclusion few would argue with. Market failure is well known. Once we acknowledge the role of the state to correct market failures in the area of equity and social justice, it is not clear what additional role the government would have. The questions not addressed in this book are should mainstream economics concern itself with human rights, what would be the consequences if it did, and who would be responsible for ensuring the result.
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