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Book part
Publication date: 13 March 2013

Kenneth D. Lawrence, Gary Kleinman, Sheila M. Lawrence and Ronald K. Klimberg

This research examines the use of econometric models to predict the total net asset value (NAV) of an asset allocation mutual fund. In particular, the mutual fund case used is the…

Abstract

This research examines the use of econometric models to predict the total net asset value (NAV) of an asset allocation mutual fund. In particular, the mutual fund case used is the Vanguard Wellington Fund (VWELX). This fund maintains a balance between relatively conservative stocks and bonds. The period of the study on which the prediction of the total NAV is based is the 24-month period of 2010 and 2011 and the forecasting period is the first three months of 2012. Forecasting the total NAV of a massive conservative allocation fund, composed of an extremely large number of investments, requires a method that produces accurate results. Achieving this accuracy has no necessary relationship to the complexity of the methods typically employed in many financial forecasting studies.

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Advances in Business and Management Forecasting
Type: Book
ISBN: 978-1-78190-331-5

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Abstract

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Investment Traps Exposed
Type: Book
ISBN: 978-1-78714-253-4

Book part
Publication date: 12 April 2012

Kenneth D. Lawrence, Dinesh R. Pai and Sheila M. Lawrence

Multi-criteria optimization by meta-goal programming of a portfolio of asset allocation mutual funds is the focus of this chapter. Asset allocation is generally defined as the…

Abstract

Multi-criteria optimization by meta-goal programming of a portfolio of asset allocation mutual funds is the focus of this chapter. Asset allocation is generally defined as the allocation of an investor's portfolio across a number of different asset classes. The standard classical portfolio model uses the nonlinear model of quadratic programming to minimize risk and maximize return by mean absolute deviation. Instead of the variance measure of the risk of the rate of return, the mean absolute deviation is used as a measure of risk. In this chapter, three types of meta-goals are Type 1: a meta-goal relating to other percentage sum of unwanted deviations, Type 2: a meta-goal relating to the maximum percentage deviation, and Type 3: a meta-goal relating to the percentage of L∞ goals.

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Applications of Management Science
Type: Book
ISBN: 978-1-78052-100-8

Book part
Publication date: 12 November 2014

Kenneth D. Lawrence, Gary K. Kleinman and Sheila M. Lawrence

This research examines the use of a number of time series model structures of a moderate allocation mutual fund, PRWCX. PRWCX was rated as the top fund in its category during the…

Abstract

This research examines the use of a number of time series model structures of a moderate allocation mutual fund, PRWCX. PRWCX was rated as the top fund in its category during the past five years. The fund invests at least 50% of its total assets that the fund manager believes that have above average potential for capital growth. The remaining assets are generally invested in convertible securities, corporate and government debt bank loans, and foreign securities. Forecasting the total NAV of such a moderate allocation mutual fund, composed of an extremely large number of investments, requires a method that produces accurate results. These models are exponentially smoothing (single, double, and Winter’s Method), trend models (linear, quadratic, and exponential) are Box-Jenkins models.

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Advances in Business and Management Forecasting
Type: Book
ISBN: 978-1-78441-209-8

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Book part
Publication date: 27 September 2011

Rolando Avendaño and Javier Santiso

Purpose – To study the allocation in equity markets of sovereign wealth funds’ (SWF) investments with respect to other institutional investors. To analyze the role of political…

Abstract

Purpose – To study the allocation in equity markets of sovereign wealth funds’ (SWF) investments with respect to other institutional investors. To analyze the role of political regimes in the sending and recipient countries as a determinant of the allocation of SWF investments.

Methodology/approach – We use mutual funds’ investments as a benchmark for SWF investment allocations. We collect data of SWF and mutual fund equity investments at the firm level and analyse them on a geographical and sector basis. We compare target investments for these two groups by looking at the political regime in the sending and recipient country, using different political indicators (Polity IV, Bertelsmann). We provide a comparison of SWFs and pension funds based on governance features related to investment.

Findings – We find that the fear that sovereigns with political motivations use their financial power to secure large stakes in OECD countries is not confirmed by the data. SWF investment decisions do not differ greatly from those of other wealth managers. Although there can be differences in the allocation, political regimes in the recipient countries do not play a role in explaining the allocation of sovereign wealth funds.

Social implications – Investment from public institutions, such as sovereign wealth funds, can have significant implications at the economic and social level. Sovereign funds are potential sources of capital for emerging economies, and therefore can enchance economic growth. It is important to understand to what extent public institutional investors behave differently from private investors. The “political bias” is not a relevant factor for sovereign funds, or for other institutional investors, for allocating their capital. More often than not, their asset allocation strategies converge with other large investors, these being driven by financial and not political bias.

Originality/value of the chapter – The chapter is an original contribution providing a firm-level analysis of equity holdings for two groups of institutional investors. Moreover, it emphasizes the political dimension of institutional investments, highlighting the priorities and constraints of public investors participating in financial markets. The chapter suggests that SWFs do not discriminate by the political regime of the recipient country in their asset allocation.

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Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

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Abstract

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Investment Traps Exposed
Type: Book
ISBN: 978-1-78714-253-4

Book part
Publication date: 24 October 2013

Aidan Yao and Honglin Wang

Since their inception in late 2007, the Qualified Domestic Institutional Investor (QDII) funds, which help Chinese investors to invest in foreign capital markets, have experienced…

Abstract

Since their inception in late 2007, the Qualified Domestic Institutional Investor (QDII) funds, which help Chinese investors to invest in foreign capital markets, have experienced significant portfolio losses and persistent fund outflows. While these losses are large in absolute terms, QDII funds, on average, performed better than Chinese A-share funds, but slightly worse than a group of foreign mutual funds. Our study focuses on the QDII industry, and asks three interrelated questions: (1) why have there been large fund outflows from the industry? (2) what explains QDII funds’ poor performance? and (3) why have QDII funds been so heavily exposed to the Hong Kong market? Our empirical analysis shows that the persistent capital outflows were primarily a result of disappointing fund performance. This poor performance can, in turn, be explained by the deficiency of knowledge required of QDII fund managers to successfully invest in foreign capital markets and manage global portfolios. Finally, our study goes some way to explain the phenomenon of QDII funds’ large asset allocation in the Hong Kong market. This ‘Hong Kong bias’ is shown to be consistent with the well-documented ‘home bias’ behaviour in cross-border portfolio investment, but is greatly exacerbated by the lack of global investing experience of QDII managers.

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Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

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Content available
Book part
Publication date: 16 April 2020

H. Kent Baker, John R. Nofsinger and Andrew C. Spieler

Abstract

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The Savvy Investor's Guide to Building Wealth Through Traditional Investments
Type: Book
ISBN: 978-1-83909-608-2

Book part
Publication date: 27 February 2009

Mukesh Bajaj, Sumon Mazumdar, Vikram Nanda and Rahul Surana

It is widely believed that contrary to standard asset allocation theory, employees irrationally hold concentrated investments in company stock in their 401(k) plans thus bearing…

Abstract

It is widely believed that contrary to standard asset allocation theory, employees irrationally hold concentrated investments in company stock in their 401(k) plans thus bearing firm-specific risk that could otherwise have been diversified away (see e.g., Benartzi, 2001). However, in measuring any such lack of diversification costs, a unique tax benefit associated with such investments (available to those who choose the Net Unrealized Appreciation (NUA) strategy) has been hitherto ignored. We analyze an employee's optimal allocation of retirement assets among alternative investments, including company stock, in the presence of the NUA tax benefit. The employee has a standard power utility function and seeks to maximize expected utility from her after-tax wealth upon retirement. Based on simulations, we find that, even when company stock is stochastically dominated by investments in the market index, the employee will allocate a non-trivial part of her retirement funds to company stock for a wide range of parameter values. Consistent with empirical evidence, the allocation to company stock is greater for employees closer to retirement and when the company's stock has experienced substantial gain in value.

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Research in Finance
Type: Book
ISBN: 978-1-84855-447-4

Book part
Publication date: 25 February 2016

Jana Hili, Desmond Pace and Simon Grima

The uncertainty as to whether investments in riskier and less efficient markets allow managers to ‘beat the market’ remains a question to which answers are required. Accordingly…

Abstract

Purpose

The uncertainty as to whether investments in riskier and less efficient markets allow managers to ‘beat the market’ remains a question to which answers are required. Accordingly, the purpose of this chapter is to offer new insights on portfolios of the US, European and Emerging Market (‘EM’) domiciled equity mutual funds whose objectives are the investment in emerging economies, and specifically analyses two main issues: alpha generation and the influence of the funds’ characteristics on their risk-adjusted performance.

Methodology/approach

The dataset is made up a survivorship-bias controlled sample of 137 equity funds over the period January 2004 to December 2014, which are then grouped into equally weighted portfolios according to the scheme’s origin. The Jensen’s (1968) Single-Factor model along with the Fama and French’s (1993) and Carhart’s (1997) multifactor models are employed to authenticate results and answer both research questions.

Findings

Research analysis reveals that EM exposed fund managers fail to collectively outperform the market. It thereby offers ground to believe that the emerging world is very close to being efficient, proving that the Efficient Market Hypothesis (‘EMH’) ideal exists in this scenario where market inefficiency might only be a perception of market participants as any apparent opportunity to achieve above-average returns is speedily snapped up by very active managers. Overall these managers take a conservative approach to portfolio construction, whereby they are more unperturbed investing in large cap equity funds so as to lessen somewhat the exposure towards risks associated with liquidity, stability and volatility.

Furthermore, the findings show that large-sized equity portfolios have the lead over the medium and small-sized competitors, whilst the high cost and mature collective investment vehicles enjoy an alpha which although is negative is superior to their peers. The riskiest funds generated the lowest alpha, and thereby produced doubts as to whether investors should accept a higher risk for the hope of earning higher returns, at least when aiming to gain an exposure into the emerging world.

Originality/value

Mutual fund performance is not an innovative topic so to speak. Nonetheless, researchers and academia have centred their efforts on appraising the behaviour of fund managers domiciled primarily in developed and more efficient economics, leaving the emerging region highly uncovered in this respect. This study, therefore aims at crafting meaningful contributions to the literature as well as to the practical perspective.

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Contemporary Issues in Bank Financial Management
Type: Book
ISBN: 978-1-78635-000-8

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