Showing papers on "Mutual fund published in 1991"

The attributes, behavior, and performance of U.S. mutual funds

Abstract: This article examines the risk and return characteristics of U.S. mutual funds. We employ an equilibrium version of the Arbitrage Pricing Theory (APT) and a principal-components-based statistical technique to identify performance benchmarks. We also consider the Capital Asset Pricing Model (CAPM) as an alternative. We implement a procedure for overcoming the rotational indeterminacy of factor models. This procedure is a hybrid of statistical factor estimation and prespecification of factors. We estimate measures of timing ability for the CAPM and extend it to the APT. We find that this timing test is misspecified due to noninformation-based changes in mutual fund betas. We develop a modification of the timing measure that, under certain conditions, distinguishes true timing ability from noninformation-based beta changes.

Mutual fund distribution fees: An empirical analysis of the impact of deregulation

Abstract: The Securities and Exchange Commission's Rule 12b-1 ended a 40-year prohibition on the payment of distribution fees by mutual funds. The fees have the potential to create conflicts between fund managers and shareholders. This study examines the characteristics of funds implementing the plans, and assesses costs and benefits. Findings reveal that there is a growing tendency of funds, particularly load funds, to adopt the plans. The costs have begun to increase dramatically in recent years though some load funds with plans have begun reducing their loads. However, 12b-1 plans do not seem to contribute to the expense ratios of funds oriented toward capital gains. The plans offer the intangible benefit of spreading load charges across time, thus increasing a fund's attractiveness to a broader range of investors.

Political Elements in the Creation of a Mutual Fund Industry

Abstract: Mutual funds have huge financial resources, more than a halftrillion dollars of assets in the aggregate.' Only three types of financial institutions (banks, insurance companies, and pension plans) have greater aggregate assets. Yet despite their size, mutual funds rarely participate in corporate governance. They are intermediaries, channeling funds from disparate individuals into investments. They gather and process information about industrial investments that the funds' owners cannot easily gather and process.

New evidence on timing and security selection skill of mutual funds

Abstract: + '0 his paper empirically examines market tim!= ing and selectivity performance of a sample of mutual fund managers. Most past studies have found little evidence of superior manager performance .' Our model, however, which uses a simple regression technique to separate stock selection ability from timing ability, indicates some evidence of superior microand rnacroforecasting ability at the individual fund level. This technique, first suggested by Treynor and Mazuy [1966], and later refined by Bhattacharya and Pfleiderer [1983], uses a modified security market line approach to produce individual measures of timing and stock selection ability. Inputs are only the returns earned on the fund and those earned on the market portfolio. The richer model that we employ here has the potential to identify superior performance more frequently, thereby providing more powerful results than previous studies.

Do Benchmarks Matter? Do Measures Matter? A Study of Monthly Mutual Fund Returns

Abstract: This paper empirically examines the extent to which some of the different performance measures developed in the literature provide different evaluations of performance It also examines how robust these performance scores are to the vhoice of benchmark portfolio An analysis of 109 passive portfolios and 279 mutual funds finds that the measures generally yeild similar inferences when using the same benchmark and that inferences can vary, even from the same measure, when using diffferent benchmarks

Tax-Advantaged Investing: Comparing Variable Annuities and Mutual Funds

Abstract: As part of the financial planning process, CPAs can provide valuable input to help clients select the appropriate combination of investment vehicles to achieve the client's financial goals and objectives. Both variable annuities and mutual funds merit consideration. When choosing between a variable annuity and a mutual fund, investors need to carefully define their financial goals (such as retirement fund, child's education, long-term growth) and choose the vehicle which best meets those goals. Because of the CPA's close financial relationship with the client, he or she is in a unique position to help the client determine his goals. An understanding of these goals, along with the CPA's knowledge of the client's tax situation, means the CPA is well suited to help the client choose between these two important investment alternatives. ALLOCATING INVESTMENT DOLLARS Variable annuities and mutual funds often compete for the same investment dollars because, like a "family" of mutual funds, a variable annuity allows the holder to invest in a similar range of professionally managed securities portfolios. This article compares investments in nonqualified variable annuities with mutual funds by examining, under different assumptions, the holding period necessary to generate the same after-tax accumulation. With a variable annuity, the contract holder/annuitant is typically offered investment options similar to those of a mutual fund family. Offerings normally include a money market fund, one or more stock funds and one or more bond funds. Like mutual funds, payments or premiums to fund variable annuities may be paid either as a lump sum (single premium deferred annuities) or in installments flexible premium annuities). With a variable annuity, the investment risk is borne by the annuitant and not the insurance company. Consequently, like mutual funds, the cash value of the annuity is linked to the performance of the annuity's underlying investments. With either an annuity or a mutual fund, the participant bas the right to withdraw the accumulation at any time but with different consequences. Variable annuities are held in separate accounts, not in the insurance company's general account. This means these monies, like monies invested in mutual funds, are not part of the balance sheet of the company and cannot be used to satisfy its debt obligations. With the effective elimination of traditional tax shelters as a result of the Tax Reform Act of 1986, insurance companies have promoted annuities as one of the few remaining tax shelters. Promotional literature typically compares a hypothetical investment in a tax deferred annuity with one in a taxable investment (such as a mutual fund). The assumption is that both the tax-deferred annuity and the taxable investment earn the same rate of return, and earnings from the taxable investment are taxed each year at a maximum rate. A chart in the marketing brochure typically illustrates accumulations over periods of 10 to 30 years with the predictable result: The tax-deferred accumulation significantly exceeds the accumulation of the taxable investment, particularly over longer periods of time. This illustration, however, fails to consider several variables, any of which could significantly reduce the tax-deferred accumulation. These variables include the taxability of annuity earnings upon distribution, the 10% premature withdrawal penalty for distributions before age 59 1/2 and contract fees. When these factors are taken into consideration, the investor may be worse off investing in a variable annuity than in a mutual fund whose earnings are taxed annually. FEE CHARGES In order to compare variable annuities with mutual funds, it's necessary to compare the fees charged annuity contract holders with those charged mutual fund shareholders. As of May 1, 1989, the Securities and Exchange Commission, which regulates variable annuities as well as mutual funds, requires full disclosure at the beginning of an annuity prospectus of all expense charges imposed on an annuity holder. …

Non-parametric tests of portfolio efficiency under static and dynamic conditions

Abstract: A set of non-parametric tests which includes the stochastic dominance criteria is developed here for evaluating the performance of mutual fund portfolios in relation to the market index. The empirical results support the hypothesis that some funds tend to dominte the market on the average, when a second-order stochastic dominance criterion is used.

Integration of Financial Services in the European Community: Lessons from the Experience in the United States

Abstract: The plans for European integration by 1992 are ambitious ones. They include the removal of remaining internal tariff and nontariff barriers to trade for commodities and services and the extension within the Community of the nondiscriminatory treatment of each nation’s enterprises (Cecchini, 1988; Colchester, 1989; Bhatt, 1989; Pinder, 1986; Nicoll, 1985; Capotorti et al., 1986; Brewin and McAllister, 1987; Langeheine and Weinstock, 1985). Within the general plans are more specific ones for the integration and harmonization of financial services according to objectives announced at the June 1989 meeting of the heads of the EC states in Madrid. These plans relate to various aspects of securities markets — the underwriting and marketing of new issues, the securities exchanges, markets for unlisted securities, securitization of the assets of financial intermediaries and venture capital markets (Colchester, 1989; Bhatt, 1989; The Economist, (1988a, 1988b); Lopez-Charos, 1987; Tully, 1988; Winder, 1986; Gordon, 1987). The plans call as well for the harmonization of insurance regulations, including those governing ties between insurance and other financial services. And, of course, the plans relate to commercial banking or, more generally, to deposit-type financial intermediaries (Key, 1989; Padoa-Schioppa, 1988). Here the topics range from the possible creation of a European central bank (de Cecco et a1., 1989) through the harmonizing of prudential and protective regulations, to deposit guarantees and other schemes for assuring the stability of credit.

Mastershares: market prices divorced from fundamentals

Abstract: The shares of a closed-end Mutual Fund may be regarded as derived securities because their value depends entirely on the prices of securities that comprise the fund portfolio. Therefore, the Net Asset Value (NAV) of these shares, after adjustments for winding up costs, can be regarded as their fundamental value. In an efficient market, the prices of these shares would move in line with the changes in their NAV. This paper examines the relationship between the price and the NAV of Mastershares, the first closed-end fund in India. The investigations revealed that there is excessive volatility in prices, not justified by the fluctuations in the NAV. The price also show a mean reverting behaviour. These observations are in line with recent works on irrationality in pricing of securities and emphasize the doubts raised about efficacy of standard test for market efficiency.

Information search in the mutual fund market in the U.S. A.

Abstract: Sequential decision-making principles are introduced which can be applied to mutual fund investing. Specific attention is given to the nature of the mutual fund market and the expected pay-off from a low-cost information search. Empirical results are based on historical returns and information that is readily available in popular press sources. Substantial variation in historical performance was found and the pay-off from a market search was positive and substantial in many cases.