A New Family of Equity Style Indices and Mutual Fund Performance: Do Liquidity and Idiosyncratic Risk Matter?

Wagner, Niklas; Winter, Elisabeth

doi:10.2139/ssrn.1274618

Cited by 14 publications

(18 citation statements)

References 63 publications

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“…19 Negative liquidity betas suggest both SMAs and MFs are fairly liquid. Although means and medians of liquidity betas are statistically significant, the differences between the coefficients are only marginally different in mean and not significantly different in median, a finding that is consistent with Wagner and Winter (2013). 20 This finding serves as initial evidence that performance difference between SMAs and MFs is not driven by differences in liquidity.…”

Section: Comparison Of Sma and Mf Returnssupporting

confidence: 63%

“…Conversely, SMA managers can hold less liquid assets, make valuation-based trades (trades based on convictions about the value of the stock) rather than liquidity-motivated trades, and earn a liquidity premium since there is no redemption risk assumed by the fund. Wagner and Winter (2013) find that MF managers prefer more liquid stocks in their portfolios. In addition, Cao, Simin and Wang (2013) document that MF managers have the ability to time the market by increasing market exposure in periods leading up to more liquid markets and decrease exposure in periods preceding less liquid markets.…”

Section: Industry Background and Prior Literaturementioning

confidence: 85%

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Tailored versus Mass Produced: Portfolio Managers Concurrently Managing Separately Managed Accounts and Mutual Funds

Chen

Johnson

et al. 2017

The Financial Review

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Using a matched sample of separately managed accounts (SMAs) and mutual funds (MFs) with the same portfolio manager and investment style, we find that concurrently managed MFs consistently underperform their SMA counterparts and generate more negative return gaps. Fund characteristics and liquidity betas fail to fully explain the underperformance. An event‐study analysis finds that the weights placed into top (bottom)‐performing stocks increase for existing SMAs (MFs) and negative return gaps increase for the MFs after the onset of concurrent management. We find that higher compensation collected by SMA fund managers are associated with more unseen managerial actions which positively contribute to the SMA return gap. Our results suggest that when managers concurrently manage both SMAs and MFs, they favor SMA performance over their MF performance.

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Section: Comparison Of Sma and Mf Returnssupporting

confidence: 63%

Section: Industry Background and Prior Literaturementioning

confidence: 85%

Tailored versus Mass Produced: Portfolio Managers Concurrently Managing Separately Managed Accounts and Mutual Funds

Chen

Johnson

et al. 2017

The Financial Review

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“…Malkiel and Xu [5,6], Goyal and Santa-Clara [7] and Fu [8] studies find a positive relationship between the idiosyncratic volatility and stock returns, whereas considerable number of studies by Ang et al [9,10], Guo and Savickas [11], Frieder and Jiang [12], Chua et al [13] and Wagner and Winter [14] find a negative relationship between the idiosyncratic volatility and stock returns. One finding which is common in most of the above-mentioned studies is that CAPM neglects idiosyncratic volatility in asset pricing.…”

Section: Introductionmentioning

confidence: 99%

Is idiosyncratic risk ignored in asset pricing: Sri Lankan evidence?

Maiti

2019

Futur Bus J

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The present study focused on one of the important South Asian nations-Sri Lanka-to examine the role of idiosyncratic volatility in asset prices. A four-factor model with idiosyncratic volatility was designed for capturing the market, size, value and idiosyncratic risk yields better than Fama and French's (J Financ Econ 33:3-56, 1993) three-factor model and performance of the model. Fama-MacBeth's cross-sectional regression, residual graphs and GRS test all confirm the superiority of four-factor model over 2 three-factor models. For all MC-and IVOL-based portfolios, idiosyncratic volatility is negatively related to the expected returns and positively related for all PB-based portfolios. Finally, study findings confirm that there is a high importance for idiosyncratic volatility risk factor while considering investment decision in Colombo stock exchange. Hence, investor should compensate for holding such risk factors in the portfolio.

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“…The literature does not provide a consensus on the relationship between liquidity and fund returns. Some studies find that this relationship is positive, while others suggest it is negative (see Wagner & Winter, 2013;Vidal-Garcia & Vidal, 2013;Narayan & Zheng, 2011). We propose that liquidity has a positive impact on mutual fund performance.…”

Section: Research Hypothesesmentioning

confidence: 69%

“…They find a negative relationship between liquidity and mutual fund returns on the Shenzhen and Shanghai stock exchanges. Wagner and Winter (2013) explore the impact of idiosyncratic risk and liquidity on the performance of mutual funds in Europe for the period 2002-09. They show that both liquidity and idiosyncratic risk determine performance, where liquidity has a positive impact on mutual fund performance.…”

Section: Literature Reviewmentioning

confidence: 99%