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1 – 3 of 3The 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.
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Tor Brunzell and Jarkko Peltomäki
The purpose of this study is to explicitly focus on the roles of ownership concentration, ownership by the board, the chief executive officer (CEO) and the chairperson in the…
Abstract
Purpose
The purpose of this study is to explicitly focus on the roles of ownership concentration, ownership by the board, the chief executive officer (CEO) and the chairperson in the involvement and capabilities of chairpersons and other governors in their work.
Design/methodology/approach
In this study, the authors investigate the impact of the concentration of ownership, the ownership of the board, the CEO and the chairperson on the chairperson’s activity when the roles of the chairperson and the CEO are separated The empirical analysis of this study is based on a survey sent to Nordic listed firms.
Findings
The results show that the ownership characteristics of a company are important in determining the chairperson’s working hours, the chairperson’s communication with the CEO and the performance of governance activity. In addition, the authors found that while the ownership of the chairperson and the board of directors and ownership concentration improve governance activity, CEO ownership may undermine governance activity.
Research limitations/implications
The primary implication of the study is that both ownership by internal governors and ownership concentration play an important role in determining the involvement of internal corporate governors.
Originality/value
The study provides unique evidence that ownership by the chairperson, concentrated ownership and ownership by the board can potentially mitigate the costs of separating the roles of the chairperson and the CEO.
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The purpose of this study is to investigate the benefits of using a more diverse derivative strategy of a fund in relation to their performance and risk characteristics.
Abstract
Purpose
The purpose of this study is to investigate the benefits of using a more diverse derivative strategy of a fund in relation to their performance and risk characteristics.
Design/methodology/approach
In this study, samples of 3,382 individual hedge funds and 761 funds of hedge funds are used to analyse risk in derivative strategies.
Findings
The results of the study are consistent with the hypotheses that the diversity of derivatives strategy can be related to increased probability of suffering large losses and weaker performance. These awkward characteristics related to the diversity are particularly apparent for the fixed‐income arbitrage strategy. Funds of hedge funds differ from hedge funds as they are more likely to use derivatives for risk management.
Originality/value
This study presents new evidence on the relation between derivative use and fund performance. In this study, a new measure of the diversity of a derivative strategy is considered, which is the number of derivatives used by a fund.
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