Publications

Daily Mutual Fund Flows and Redemption Policies

Jason T. Greene et al. — Tue, 09 Nov 2010 11:27:39 PST

We examine how redemption policies affect daily fund flows in open-end mutual funds. Since short-term trading of fund shares, as manifested in daily fund flows, can have an adverse impact on returns to the fund’s shareholders, mutual funds might find it desirable to discourage short-term trading through the use of redemption fees. However, if daily fund flows are due to fund shareholders’ legitimate liquidity demands, the redemption fee would have little effect on daily fund flows and possibly adversely affect fund shareholders by imposing a liquidity cost on them. We find that the likelihood of a fund charging a redemption fee is largely a function of its overall fee structure. We also use a sample of funds that imposed redemption fees to examine whether the distribution of daily fund flows changes after the initiation of the redemption fee. We find that the redemption fee is an effective tool in controlling the volatility of fund flows.

Capacity and Factor Timing Effects in Active Portfolio Management

Conrad Ciccotello et al. — Fri, 01 Oct 2010 11:06:45 PDT

Capacity constraints limit the profits of some investment strategies, while other strategies are more scalable. We develop a dollar-weighted return measure that parses the factor timing by investors and a strategy’s capacity constraints. We find that actively managed funds exhibit significant capacity and timing effects, while index funds display only timing effects. A portfolio’s liquidity, investment style, and distribution policy are important in explaining variation in capacity constraints. The analysis demonstrates that capacity and timing effects are important in analyzing portfolio manager skill and the cost of active investing.

The Antecedents of Simultaneous Appointments to CEO and Chair

Wallace N. Davidson III et al. — Fri, 01 Oct 2010 11:06:44 PDT

In relay succession, boards add the Chair title to successful CEOs, creating duality. Sometimes boards by-pass relay succession and appoint an individual directly into the dual position. We propose that this will occur when there is the need for an unambiguous leader and when the appointee has greater bargaining power. We show that following the firing of the predecessor, when the successor is an outsider, and when the successor is not the designated heir, the incidence of simultaneous dual appointments increases. We also find that executives appointed into the dual positions are older than those appointed only as a CEO.

The Dynamics of Short-term Mutual Fund Flows and Returns: A Time-series and Cross-sectional Investigation

David Rakowski et al. — Fri, 01 Oct 2010 11:06:43 PDT

This study analyzes the dynamics of daily mutual fund flows. A Vector Auto Regression (VAR) of flows and returns shows that the behavior of fund investors is more consistent with contrarian rather than momentum characteristics. Past fund flows have a positive impact on future fund returns, with the long-term information effect dominating the transient price-pressure effect. Seasonality in daily flows, such as day-of-week and day-of-month patterns are present, and daily flows are generally mean-reverting. Probit regressions indicate that fund investment objective, marketing policy and level of active management explain cross-sectional variation in the behavioral patterns displayed in daily flows. Our results are robust to the different methods of calculating daily flows based on whether or not the day-end TNA figures include the current-day’s flow. Throughout the analysis, we contrast the dynamics of daily flows with established results for monthly fund flows and find important differences between the two.

Order Submission Strategy and the Curious Case of Marketable Limit Orders

Mark Peterson et al. — Tue, 21 Sep 2010 10:10:24 PDT