Search results

1 – 10 of over 31000
Content available
Article
Publication date: 4 June 2021

Jeongjoon Park, Jaewan Bae and Changjun Lee

Given the importance of style allocation strategy under the outsourced chief investment officer (OCIO) structure, the authors examine the validity of style allocation…

Abstract

Purpose

Given the importance of style allocation strategy under the outsourced chief investment officer (OCIO) structure, the authors examine the validity of style allocation strategies in the Korean stock market. The authors find that external investment agencies can improve performance by using newly suggested investment styles such as high dividend yield and low volatility as well as traditional styles. In addition, the authors find that the style combination strategies create economically large and statistically significant returns. Finally, empirical results indicate that factor timing strategies suggested in this study can improve the reward-to-risk ratio. In sum, the empirical findings indicate that external investment agencies under the OCIO structure can improve performance using active style allocation strategies.

Details

Journal of Derivatives and Quantitative Studies: Seonmul yeon’gu, vol. 29 no. 2
Type: Research Article
ISSN: 1229-988X

Keywords

To view the access options for this content please click here
Article
Publication date: 6 February 2017

Jarkko Peltomäki

The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a…

Abstract

Purpose

The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a multifactor model does not suit all investment styles equally well. If the factors of the analysis model do not span the portfolio holdings of a fund with less conventional investment strategy, the use of a multifactor model may even deteriorate the overall inference in measuring the market timing skill of a large sample of funds.

Design/methodology/approach

This study investigates the limitations of multifactor models in the analysis of market timing skill by applying the traditional Treynor-Mazuy and Henriksson-Merton analysis models of market timing skill using a set of “placebo” funds which are “natural” passive market timers.

Findings

The results of the study show that the incorporation of the Carhart four-factor model into the analysis of market timing skill considerably reduces the percentage of significant market timing results. But, as expected, the reduction of bias is not equal for different investment styles, and it works best when the factors of the analysis model are related to the investment style of the placebo portfolio.

Practical implications

This style-related limitation of multifactor models in the analysis of market timing skill may result in detecting funds with less conventional investment strategies as market timers since the factors used in the analysis are not likely to span their investment styles.

Originality/value

This study shows that the use of a multifactor model may lead to inferring passive market timers with less conventional investment styles as market timers. In addition, the findings of the study leave option replication approaches as more preferable bias corrections than multifactor extensions.

Details

International Journal of Managerial Finance, vol. 13 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

To view the access options for this content please click here
Article
Publication date: 1 February 2021

Fernando Muñoz, María Vargas and Ruth Vicente

This study aims to examine style-deviation practices in the socially responsible mutual funds (SMRF) industry i.e. how mutual funds game their stated financial objectives…

Abstract

Purpose

This study aims to examine style-deviation practices in the socially responsible mutual funds (SMRF) industry i.e. how mutual funds game their stated financial objectives to earn a higher relative performance ranking. In addition, the consequences of such practices on sustainable scores and money flows are studied.

Design/methodology/approach

A sample of 454 US equity SRMFs is studied. This paper uses panel regressions controlling for time and style fixed-effects.

Findings

This study finds that 17.60% of SRMF managers in the sample are engaged in style deviation practices. These practices positively impact the sustainable performance of SRMFs and negatively impact their financial performance. One effect offsets the other and they consequently do not affect money flows. Another finding is that only investors with lower portfolio sustainability scores do show return-chaser behaviour.

Practical implications

This paper reveals that SRMF managers deviating from their stated financial style face a dilemma that is non-existent for their conventional peers that is style deviation practices affect financial and sustainable performance in opposing ways, whereas SRMF investor utility depends positively on both dimensions. The findings are not conclusive about the effectiveness of style deviation practices in attracting SRMF money flows.

Social implications

SRMF industry has experienced tremendous growth in the past decade. The increased competition in this industry has led managers to strive to attract investors, sometimes by relying on irregular practices that enhance their portfolio results. Regulators should consider how to avoid such perverse behaviour with a view to improving mutual funds transparency.

Originality/value

This is the first research that analyses style deviation practices and their consequences for the SRMF industry.

Details

Sustainability Accounting, Management and Policy Journal, vol. 12 no. 5
Type: Research Article
ISSN: 2040-8021

Keywords

To view the access options for this content please click here
Article
Publication date: 1 February 2004

Hsiu‐Lang Chen

This paper investigates whether style migration affects industry evolution. The study documents industry evolution in terms of market weights, returns, and risks over the…

Abstract

This paper investigates whether style migration affects industry evolution. The study documents industry evolution in terms of market weights, returns, and risks over the sample period from 1966 to 2000. The study shows that investment styles migrate in different degrees across different industries over time. In addition, the relation between industry evolution and style migration is neither simple nor static. The paper shows that growth‐value migration has predictability about the industries' returns and changes in volatility. Furthermore, style migration in the industry is mainly driven by existing firms changing their investment styles, not by new entrants to the industry causing style shifts. Both investment theory and its application to investment management critically depend on our understanding of stock return persistence anomalies. The ability to outperform buy‐and‐hold strategies by acquiring past winning stocks and selling past losing stocks, commonly referred to as “individual stock momentum,” remains one of the most puzzling of these anomalies. Moskowitz and Grinblatt (1999) attribute the bulk of the observed momentum in individual stock returns to industry momentum—the tendency for stock return patterns at the industry level to persist. It is well known that there are hot and cold IPO markets, and hot and cold sectors of the economy. Investors may simply herd toward (away from) these hot (cold) industries and sectors, causing price pressure that could create return persistence. The recent attraction to internet stocks is perhaps the latest manifestation of such behavior, which is not unlike a similar pattern biotechnology firms and railroad firms witnessed in 1980s and 1900s, respectively. For the active portfolio manager, rotation among different industries may provide opportunities for portfolio performance enhancement. As a result, understanding both the evolution of industries and the style factors causing cyclical variation in industry returns and risk plays an important role in professional portfolio management. Given the fact that a number of researchers have found consistent differences among the returns of various equity classes, investment styles of size and growth‐value are natural candidates for studying what causes cyclical variation in industry returns and risks. Individual investment styles perform differently during various stages of a cycle of bull market and bear market. For example, small cap stocks outperformed large cap stocks in the 1970s, but large cap stocks outperformed small cap stocks in the 1980s. Growth stocks outperformed value stocks in 1998 while the opposite occurred in 1997. Although it is well documented that the cross‐sectional variation in expected returns can be captured by three factors: market, size, and book‐to‐market, it is not yet clear whether cyclical variations in style attributes, not style returns, influence cross‐sectional variation in expected returns and return variance. In the investment industry, cyclical variation in style attributes is commonly called style migration. Perez‐Quiros and Timmermann (2000) provide a rational suggestion that small firms are most strongly affected by tighter credit market conditions in a recession and thus cyclical variations in style performance result from business cycles. As certain equity classes took off and others fell out of favor, investors overreacted, thereby causing cyclical variations in returns and risks of industries where firms are similarly sensitive to the fundamental shocks. In a recent study of behavioral finance, Barberis and Shleifer (2003) argue that in the presence of switchers who can affect asset prices by moving funds across styles, a style‐level momentum strategy could be successful because good performance by a style attracts switcher flows, which then drive the prices even higher. Analyzing the extent of interaction between style migrations and industry evolution may shed light on understanding the sources of predictable components in industry returns and risk. This paper provides such a contribution to the literature. The rest of the paper is organized as follows. Section I describes the sample data and summarizes industry evolution in terms of market capitalization weights in the entire market over time. Section II analyzes style migration within each industry. Section III examines the effect of style migration on industry evolution. Section IV concludes.

Details

Review of Accounting and Finance, vol. 3 no. 2
Type: Research Article
ISSN: 1475-7702

To view the access options for this content please click here
Article
Publication date: 14 February 2018

Yu-Cheng Lin, Chiung-Yao Huang and Yu-Shan Wei

The purpose of this paper is to examine the ethical investment willingness decision-making process to understand how investors evaluate corporate social responsibility…

Abstract

Purpose

The purpose of this paper is to examine the ethical investment willingness decision-making process to understand how investors evaluate corporate social responsibility (CSR) actions.

Design/methodology/approach

Data were collected through a survey of 298 individual investors and analyzed using structural equation modeling.

Findings

Results reveal that perfectionist decision-making style is positively related to perceived moral intensity, substitutability of financial returns, and ethical investment willingness. In addition, perceived moral intensity and substitutability of financial returns are positively related to ethical investment willingness. Finally, perceived moral intensity is positively related to substitutability of financial returns, and a two-factor causal mediation model is supported.

Research limitations/implications

The limitation of this study was that the pre-tests and sampling methods required all participants to have investing experience; however, procurement of trading information for each investor was impossible; thus, actual investment behaviors were undetermined. This study shed light on the mediating roles of perceived moral intensity and the substitutability of financial returns. Future studies can further investigate the factors influencing perceived moral intensity and the substitutability of financial returns.

Practical implications

Future ethical investment education can focus on cultivate the ability to distinguish ethical investments and change ethical investment willingness into actual investment behavior.

Originality/value

Understanding the relationship between these variables can help understand why ethical investment willingness varies among investors and how the traditional financial theory investment decision model should be revised as, internationally, more people have begun to observe CSR and sustainable development.

To view the access options for this content please click here
Article
Publication date: 8 May 2009

Brenna O'Roarty

The demand for value added investment in the European real estate market emerged in the mid to late 1990s and over the past decade has grown rapidly as a preferred…

Abstract

Purpose

The demand for value added investment in the European real estate market emerged in the mid to late 1990s and over the past decade has grown rapidly as a preferred investment style. Recent evidence suggests that investor appetite for value added products is set to intensify further. The purpose of this paper is to consider value added investment in the context of the wider market and in particular considers the rationale underpinning the current surge in demand. The paper explores the core components of its risk return profile and puts forward a strategic investment framework for European value added investment.

Design/methodology/approach

This paper develops a three tier filter to enable the classification of investment style. First, the risk parameters of the key investment characteristics are considered; second, the degree of risk exposure experienced on any one dimension and finally, the combination of such risks taken at any one time.

Findings

The key findings of this paper are: the shift in capital towards real estate at the beginning of the decade brought a new investor audience to the sector. Alongside the existing investor base, their growing experience in the sector, together with steep pricing competition for core has increased their risk appetite within the sector.

Originality/value

The paper emphasizes that investment strategies focussed on delivering true risk adjusted value added returns must be capable of identifying structural change, evaluating its implications for the real estate market and analysing its impact on current and future value.

Details

Journal of European Real Estate Research, vol. 2 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

To view the access options for this content please click here
Article
Publication date: 1 January 2001

Paul L. Gronewoller, Janet McLeod and Lawrence C. Rose

This study evaluates the practicability of style analysis in evaluating the risk‐adjusted performance of New Zealand's retail equity trusts. The size of the New Zealand…

Abstract

This study evaluates the practicability of style analysis in evaluating the risk‐adjusted performance of New Zealand's retail equity trusts. The size of the New Zealand market and the short history of data available generate doubts concerning the usefulness of style analysis under these conditions. Style analysis provides useful insight when applied to the New Zealand retail equity unit trust sector. Two prevalent styles are identified, a large cap style and a mid‐cap‐value/small cap style. Little variation in style was detected for the group of trusts that tracked the large‐cap equity index but substantial variation was indicated in relative performance versus a passive investment in their style benchmarks. Significant variation was detected, both in terms of style and relative performance of trusts that tracked a mid‐cap‐value/small‐cap index. A small number of New Zealand equity managers were able to maintain a consistent style, while meeting or beating the performance of their style benchmarks.

Details

Pacific Accounting Review, vol. 13 no. 1
Type: Research Article
ISSN: 0114-0582

To view the access options for this content please click here
Article
Publication date: 23 June 2020

Aigbe Akhigbe, Bhanu Balasubramnian and Melinda Newman

Though exchange-traded funds (ETFs) are similar to mutual funds, we identify several reasons how they are different based on their structure and trading characteristics…

Abstract

Purpose

Though exchange-traded funds (ETFs) are similar to mutual funds, we identify several reasons how they are different based on their structure and trading characteristics. Therefore, we argue that the determinants of fund closure decisions for ETFs will not be the same as the mutual funds. We systematically explore those factors.

Design/methodology/approach

We use Cox Proportional Hazard model, which is considered a superior method, over the logistic regression models. All previous studies are based on logistic regressions.

Findings

We investigate the closure rate of ETFs over the 1995–2018 sample period. We find that the first three years are the most critical period for the survival of ETFs. Our full sample results show that early fund performance, the investment style of the fund, the expense ratio and fund family size are the most relevant factors influencing the likelihood of closure. When we consider equity-only funds, we find that key factors that influence fund closure are early fund performance, the expense ratio, failure to grow the fund's assets relatively quickly and the equity investment category of the fund.

Research limitations/implications

Tracking error could be a significant factor. However, we have several missing values in the data. Therefore, we are forced to drop that variable. However, we use the SD of daily returns in lieu of that. Similarly, we were constrained by the availability of data for the equity style box scores.

Practical implications

Our study suggests that individual investors will be better off by investing in ETFs that are at least three-year to four-year old. If individuals want to invest in ETFs from the date of inception, the probability of survival is higher for an ETF within a larger fund family.

Social implications

Hopefully, our research will attract the attention of CFPB and provide a warning to individual investors when they choose to invest in ETFs. More and more ETFs are getting included in retirement savings. So, abrupt ETF closures are likely to have large social implications for the future.

Originality/value

We are the first to use Cox Proportional Hazard model. We base our arguments from latest research on ETFs that the one earlier paper on ETF closure has missed. So, we examine the issue in a more systematic way.

Details

American Journal of Business, vol. 35 no. 3/4
Type: Research Article
ISSN: 1935-5181

Keywords

To view the access options for this content please click here
Article
Publication date: 23 August 2013

Saeed BinMahfouz and M. Kabir Hassan

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to…

Abstract

Purpose

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to their broader conventional counterparts. However, the impact of incorporating sustainability criteria into the traditional Sharia screening process has not so far been investigated. Therefore, the study aims to give empirical evidence as to whether or not incorporating sustainability socially responsible criteria in the traditional Sharia screening process has a significant impact on the investment characteristics of the Islamic investment portfolio.

Design/methodology/approach

The paper examines the investment characteristics of four groups of investment portfolios mainly, Dow Jones Global Index, Dow Jones Sustainability World Index, Dow Jones Islamic Market World Index and Dow Jones Islamic Market Sustainability Index. To improve the robustness of the study, the analysis was carried out at different levels. First, absolute mean return and t‐test were used to examine whether the difference between the different groups of investments is statistically significant or not. Second, risk adjusted equilibrium models, both single‐index and Fama and French multi‐index, were employed. This is to control for different risk exposure and investment style bias associated with different investment portfolios examined.

Findings

The paper finds that neither the Sharia nor the sustainability screening process seems to have an adverse impact on the performance and systematic risk of the investment portfolios compared to their unrestricted conventional counterparts. Therefore, Muslim as well as socially responsible investors can choose investments that are consistent with their value systems and beliefs without being forced to sacrifice performance or expose to higher systematic risk.

Originality/value

The study contributes to the existing literature by giving new evidence on the impact of incorporating sustainability criteria into the traditional Sharia screening process that has not so far been investigated.

To view the access options for this content please click here
Article
Publication date: 1 July 2005

Eveline Van de Velde, Wim Vermeir and Filip Corten

This paper aims to investigate the interaction between sustainability and financial performance. Can socially responsible investors, integrating environmental, social and

Abstract

Purpose

This paper aims to investigate the interaction between sustainability and financial performance. Can socially responsible investors, integrating environmental, social and ethical issues in their investment policy, expect the same return as traditional investors?

Design/methodology/approach

Based on the sustainability ratings of a specialized rating agency, Vigeo, a Fama and French approach is performed to adapt for style biases in the performances.

Findings

The results indicate that, on a style‐adjusted basis, high sustainability‐rated portfolios have performed better than low‐rated portfolios, but, probably due to the short horizon, not to a significant extent. The same results are found for four out of the five sub‐ratings of which the sustainability rating is composed, suggesting that sustainability is a broad and multidimensional concept that cannot be attributed to one specific theme or topic. The results also indicate that investors are ready to pay a premium for companies with good management of their relations with shareholders, clients and suppliers.

Research limitations/implications

Owing to the rather new concept of socially responsible investing and in order to avoid survivorship bias, only a relative time horizon is considered.

Practical implications

There is no cost involved in integrating sustainable dimensions in the investment policy.

Originality/value

The paper shows the relevance of socially responsible investing when one adjusts for style differences within the portfolio.

Details

Corporate Governance: The international journal of business in society, vol. 5 no. 3
Type: Research Article
ISSN: 1472-0701

Keywords

1 – 10 of over 31000