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Two Essays on Mutual Funds Herding and the Information Content of Their Trades
Title
Two Essays on Mutual Funds Herding and the Information Content of Their Trades.
Creator
Carrete Rodriguez, Angel Francisco, Agapova, Anna, Florida Atlantic University, College of Business, Department of Finance
Abstract/Description
Information asymmetry literature has developed models that explain the relation between uninformed traders and informed traders. In general, these models have shown that first, information asymmetry is a driving force for investor buying and selling behavior. Second, the trades of informed investors reveal some of the information they possess suggesting that the trades of informed investors are informative to market makers. Third, when information about a stock enters the market, the...
Show moreInformation asymmetry literature has developed models that explain the relation between uninformed traders and informed traders. In general, these models have shown that first, information asymmetry is a driving force for investor buying and selling behavior. Second, the trades of informed investors reveal some of the information they possess suggesting that the trades of informed investors are informative to market makers. Third, when information about a stock enters the market, the characteristics of the firm can change, e.g., a better information environment reduces the cost of capital (Admati, 1985; Easley and O‟Hara, 2004; Wang, 1993). In this study, I apply information asymmetry theory to explore the trading behavior of active equity mutual fund managers and their role as facilitators of information. In the first essay, I study the information environment of firms mutual funds choose to add to their holdings and how it changes after the inclusion. I identify all new additions to the mutual fund holdings universe from 2002 to 2015 and compare them to the available universe of firms not yet owned by mutual funds. I find that active equity mutual fund managers behave as informed investors and prefer to buy stocks with more opaque information environments i.e., firms with larger spreads, lower trading volume, smaller firms with more growth opportunities, and firms that tend to use more accruals. Fund managers also show a preference for firms that have less analyst following, those in which analysts are less likely to agree on their EPS estimates, and firms in which analysts are more likely to err in their predictions. In other words, mutual fund managers prefer firms that are more likely to be mispriced. Once the funds include the firms, I document a strong improvement in their information environment. Firms attract more analyst coverage, reduce its use of accruals, produce more guidance, increase their market cap, and show increased turnover. The second essay focuses on the herding behavior of mutual funds. The study is the first to document the herding of mutual fund managers after creation of toehold positions by portfolio managers. I use a hand-collected dataset consisting of all toehold acquisitions reported to the SEC from 1995 to 2015 to document a strong herding reaction of active equity mutual funds after toehold announcements. This herding reaction is several times stronger than other mutual fund herding events reported by previous literature. I also document that the strength of the herding reaction varies depending on the identity of the filer or the characteristics of the firm acquired. The herding reaction is stronger for toehold announcements of firms with a smaller market capitalization, better growth opportunities, and those that are more illiquid. I also find that the herding reaction is weaker after the filings of hedge fund managers. My results support the informational herding cascade hypothesis.
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Date Issued
2018
PURL
http://purl.flvc.org/fau/fd/FA00013127
Subject Headings
Information asymmetry, Mutual funds, Herding
Format
Document (PDF)
examination of the operational efficiency of mutual funds
Title
An examination of the operational efficiency of mutual funds.
Creator
Zera, Stephen Paul, Florida Atlantic University, Madura, Jeff
Abstract/Description
A pre-determined percentage of the assets of mutual funds is extracted from each portfolio's value on a daily basis to cover operating expenses. The nature of the relationship between these fund operating expenses and fund size is the focus of this dissertation. A negative relationship is shown to exist between mutual fund operating expense percentages and mutual fund size. Next, a double-log estimating equation is utilized to generate a measure of the elasticity of mutual fund operating...
Show moreA pre-determined percentage of the assets of mutual funds is extracted from each portfolio's value on a daily basis to cover operating expenses. The nature of the relationship between these fund operating expenses and fund size is the focus of this dissertation. A negative relationship is shown to exist between mutual fund operating expense percentages and mutual fund size. Next, a double-log estimating equation is utilized to generate a measure of the elasticity of mutual fund operating expenses with respect to mutual fund size. This expense-size elasticity (ESE) is estimated to be.961 for the entire cross-sectional sample, indicating that a one percent increase in fund size is associated with a.961% increase in fund operating expenses. Next, the elasticity of mutual fund operating expenses with respect to mutual fund size is calculated for each of five fund size categories. The ESE of the largest fund size category is shown to not differ in a statistically significant manner from those of the smaller categories of mutual fund size. ESEs are then calculated for various investment objective categories and are shown to differ in a statistically significant manner. ESEs also differ between load and no-load funds as well as between open-end and closed-end funds. The lack of statistically significant differences between the ESEs of various size categories is also evident in an analysis performed on a cross-sectional sample of mutual fund families. Further, evidence of the lack of significance of fund size in explaining variation in fund-specific ESES is found in an analysis of time series data for mutual funds in existence from 1976 through 1994.
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Date Issued
1996
PURL
http://purl.flvc.org/fcla/dt/12459
Subject Headings
Mutual Funds, Investments, Portfolio Management
Format
Document (PDF)
Essays on Actively Managed Mutual Funds
Title
Essays on Actively Managed Mutual Funds.
Creator
Kaushik, Abhay, Barnhart, Scott W., Florida Atlantic University
Abstract/Description
In this dissertation, I examine three main issues in mutual fund research: 1) the performance of "sector funds" over the business cycles; 2) the performance and managerial characteristics of "focus funds" and finally 3) the impact of taxes and tax overhang on flow of funds & performance of "corporate bond funds". My first essay analyzes the performance of sector funds across different stages of business cycles. Using a sample of 1,488 sector funds over the period 1990 to 2005, I demonstrate...
Show moreIn this dissertation, I examine three main issues in mutual fund research: 1) the performance of "sector funds" over the business cycles; 2) the performance and managerial characteristics of "focus funds" and finally 3) the impact of taxes and tax overhang on flow of funds & performance of "corporate bond funds". My first essay analyzes the performance of sector funds across different stages of business cycles. Using a sample of 1,488 sector funds over the period 1990 to 2005, I demonstrate that sector funds perform differently across different stages in the business cycles. Average difference between expansion and recession cycles ranges from 2.75 percent per year to 3.78 percent per year. Findings of this essay further suggest that sector funds do exhibit different timing effects across recessions and expansions. Flow of funds and buy turnover ratio have differential effects across business cycles whereas sell turnover trading activities have a negative effect on funds' overall performance. My second essay analyzes the performance of "focus funds". These funds are well managed but tend to keep 50 or less stocks in their portfolio. Using a sample of 926 focus funds that existed during all or part of the period 1997 to 2006, I find that on average focus funds do not outperform a corresponding passive benchmark. My results further indicate that focus funds that are more concentrated in their top holdings, have larger net asset size, relatively young management and lower turnover ratios may offer higher abnormal returns compared to passive benchmarks. The third essay analyzes the effect of taxes and tax overhang on the flow of funds and performance in bond funds. Using a sample of 741 corporate bond funds that existed at some time during the period 1997 to 2006, findings of this essay indicate that new investors to bond funds are sensitive to unrealized capital gains/losses, however, the flow of funds is not affected by past dividend distributions. Findings further indicate that tax liabilities, unrealized gains/losses, and managerial tenure explain post-tax abnormal performance after controlling for investment style, and other known factors that explain the pre-tax performance ofbond funds.
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Date Issued
2007
PURL
http://purl.flvc.org/fau/fd/FA00000307
Subject Headings
Mutual funds--Management, Investment analysis
Format
Document (PDF)