Description
A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities.
___________________________________________________________________________
THE MUTUAL FUND INDUSTRY: INTERNAL AND EXTERNAL FACTORS OF PERFORMANCE
12 SEPTEMBER 2002 UNIVERSITY OF ZURICH
Aula (University Centre) Rämistrasse 71 CH-8006 Zurich
_________________________________________________________________________________________
BSI GAMMA Foundation (Global Asset Management Methods and Applications) is a private Swiss foundation established by BANCA della SVIZZERA ITALIANA (BSI SA). The National Centre of Competence in Research «FINANCIAL VALUATION AND RISK MANAGEMENT» (NCCR FINRISK) is a research programme supported by the SWISS NATIONAL SCIENCE FOUNDATION.
Conference Programme
8:45 Introductory Speech René Stulz (Ohio State University and President of BSI Gamma Foundation) Rajna Gibson (Director of the NCCR FINRISK)
Part I: Portfolio Allocation, Risk and Performance Evaluation of Mutual Funds 9:00 9:45 Philippe Jorion (University of California-Irvine) Enhanced Index Funds: Testing the Excess Return Optimization Theory Russ Wermers (University of Maryland at College Park) Style Drift
10:30 Coffee Break 11:00 Jay Shanken and Christopher S. Jones (University of Rochester) Mutual Fund Performance and Asset Allocation with Learning Across Funds 11:45 Narayan Y. Naik (London Business School) and Vikas Agarwal (Georgia State University) Characterizing Systematic Risk of Hedge Funds with Buy-and-Hold and Option-Based Strategies 12:30 Lunch Part II: Internal and External Factors in Mutual Funds Performance 14:00 Edwin J. Elton and Martin J.Gruber (New York University) Incentive Fees and Mutual Funds 14:45 David A. Latzko (Pennsylvania State University) Mutual Funds Expenses: An Econometric Investigation 15:30 Coffee Break 16:00 Alexander Kempf and Stefan Ruenzi (University of Cologne) Tournaments in the Mutual Funds Industry 16:45 Sergei Sarkissian and Susan Christoffersen (McGill University Montreal) Location Overconfidence 17:30 Cocktails Please register before 6. September! (best via email to the organizer)
NCCR FINRISK Administration Plattenstr. 14 CH-8032 Zurich E-Mail: [email protected] Tel. +41 (0)1 634 39 55 Fax +41 (0)1 634 43 45 http://www.nccr-finrisk.unizh.ch/ BSI GAMMA Foundation c/o BSI SA Via Magatti 2 CH-6901 Lugano E-Mail: [email protected] Tel. +41 (0)91 809 39 15 Fax +41 (0)91 809 39 39 http://www.bsi.ch/gamma
THE MUTUAL FUND INDUSTRY: INTERNAL AND EXTERNAL FACTORS OF PERFORMANCE
Due to the great transparency and quality of financial reporting, the mutual fund industry has been subject to a large amount of research, which has over time considerably extended our knowledge of the main elements of the industry. Issues like performance measurement, style, managers’ compensation have been explored by many contributions. In some cases the overall picture is clear. Some issues, however, remain obscure due to contrasting theoretical results. This conference brings together original pieces of research, which propose new interpretations of known facts and at the same time raise new questions. Some of the most relevant questions discussed: Are enhanced index funds efficient? How do we efficiently and effectively measure style by using portfolio data? What is the relevance of learning? How are hedge funds different from mutual funds? How do managers’ financial incentives affect portfolio and performance? Are there economies of scale? What is the relevance of factors like past performance, industry competition and location in financial centres? These are among the most important questions under discussion by investors, researchers, practitioners and regulators. This conference is likely to provide points of interest to most people looking at this industry from various perspectives. Greetings from René M. Stulz (Ohio State University and President of BSI Gamma Foundation) The mutual fund industry has grown dramatically over the last twenty years. Yet, there is much to learn about that industry. The BSI Gamma Foundation has provided support this year for twelve research projects by well-known academic scholars on the mutual fund industry. Eight of these projects are presented in this joint conference organized by the BSI Gamma Foundation and the NCCR “Financial Valuation and Risk Management”. The other four projects will be presented at the conference in Lugano on November 14. Each one of these projects provides valuable insights for academics and practitioners on issues concerning the mutual industry. These conferences will present great opportunities to learn about the latest mutual fund research and to exchange views on the management and the performance of mutual funds. Greetings from Rajna Gibson (Director of the NCCR FINRISK) The National Centre of Competence in Research “Financial Valuation and Risk Management” is very pleased to be associated with the BSI Gamma Foundation for the organization of this conference on the theme of mutual funds. We hope that, for the practitioners and the academics in the audience, the presentations and the discussions will offer new insights into the characteristics and the performance of the mutual fund industry. The Speakers Vikas Agarwal Assistant Professor of Finance at Georgia State University’s J.Mack Robinson College of Business. Vikas graduated from the PhD programme in finance at the London Business School in May 2001 and, earlier, completed his undergraduate degree in Mechanical Engineering and Masters in Management Studies in India. He worked as an executive for Larsen & Toubro, India, and a visiting faculty at K.J.Somaiya Institute of Management Studies and Research before obtaining a PhD in finance at the London Business School.Vikas’ research interests are broadly in the area of investments and asset pricing. In particular, his current research focus is in the area of alternative investment, evaluating the role of hedge funds in a prudent portfolio and understanding their risk-return characteristics.
Susan K. Christoffersen Assistant Professor of Finance at the McGill University Montreal. Previourly, she was a member of the Risk Management Project at the Financial Institutions Center and Teaching Assistant at the Wharton School. She also worked as Research Analyst for the International Economic Division at the Department of Finance of Canada and was Teaching Assistant at the Economics Department of the University of British Columbia. She holds a PhD in Finance and a Master of Finance from the University of Pennsylvania. Christoffersen’s research interests include Mutual Funds, Corporate Finance, Financial Institutions, and Investments. Edwin J. Elton Professor Elton has authored and co-authored eight books, including Modern Portfolio Theory and Investment Analysis, and written over 90 articles. He was formerly co-managing editor of The Journal of Finance and is currently associate editor of Journal of Banking and Finance, Journal of Accounting, Auditing and Finance. He served as a portfolio theory and investment management consultant for many major financial institutions in Asia, Europe and the United States. He was a senior researcher fellow at the International Institute of Management in Berlin. He received the Graham Dodd Award for research in investment and was named Distinguished Scholar by the Eastern Finance Association. He is a former president of the American Finance Association. Martin J. Gruber Professor of Finance at the Leonard N. Stern School of Business of New York University. He held an S.B. degree in Chemical Engineering from MIT and both an MBA in Production Management and a PhD in Finance and Economics from Columbia University. He is past president of the American Finance Association and served as Finance Department Chairman at NYU for eight years. He was also a director of the European Association and a founding member of the Asian Finance Association. He is a consultant in the areas of Investment Analysis and Portfolio Management in the United States, Asia and Europe. He is a member of The Board of Directors of Teachers Insurance Annuity Association, Deutsche Asset Management B.T. Mutual Funds and The Japan, Singapore and Thai Equity Fund, Inc. Christopher S. Jones Assistant Professor of Finance at the William E. Simon Graduate School of Business at the University of Rochester. He holds a PhD in Finance from the Wharton School, University of Pennsylvania. His research interests include Asset Pricing, Bayesian Analysis, Derivatives Pricing and Fixed Income. Philippe Jorion Professor of Finance at the Graduate School of Management at the University of California at Irvine. He holds an M.B.A. and a PhD from the University of Chicago, and a degree in engineering from the University of Brussels. He has authored more than fifty publications directed to academics and practitioners on the topics of risk management and international finance. His work received wide recognition, including the Smith Breeden Prize in ’99 which is awarded to the best papers in the Journal of Finance. He has also done extensive work in the area of Financial Risk Management with Derivative Instruments, and is known as an expert on the topic of Value at Risk. Alexander Kempf He held the Chair in Finance at the University of Cologne and is Director of the Finance Department. Prior to joining the University of Cologne, he taught at the University of Mannheim and held the Chair for Capital Market Theory at the Europe-University-Viadrina in Frankfurt. He received his PhD at the University of Mannheim. His current research interests include Asset Management, Mutual Funds, Asset Liquidity, Market Microstructure and Empirical Finance.
Narayan Y. Naik An Associate Professor of Finance and Director of the Center for Hedge Fund Research and Education at the London Business School. Educated at the Indian Institute of Technology in Bombay and at the Indian Institute of Management in Ahmedabad. He worked as a consultant for the World Bank before obtaining a PhD in Business Administration at the Duke University. Narayan joined the London Business School as an Assistant Professor of Finance on completing his PhD, and was promoted to Associate Professor in ’97. Over the last decade, he has played a key role in the development of the finance group at LBS, most notably in the position of Director of the PhD programme in Finance. Narayan’s research interests include Hedge Funds, Portfolio Selection, Risk Management and Market Microstructure David A. Latzko An Assistant Professor of Economics at the York Campus of the Pennsylvania State University. He previously taught at Wilkes University. He has published several articles on Economics History and Mutual Fund Cost. Stefan Ruenzi Works as a research assistant at the Department of Finance at the University of Cologne. He is currently doing his PhD on mutual funds. After finishing his studies in economics with a diploma degree at the University of Konstanz he joined the Department of Finance at the University of Cologne in April 2000. Beforehand Mr. Ruenzi spent his study abroad year at the University of Adelaide in South Australia in 1999. His current research interests include various aspects of the mutual fund business such as fee structures and compensation rules, as well as the theory of tournaments and its application to mutual funds. Sergei Sarkissian Assistant Professor of Finance, Faculty of Management at the McGill University Montreal. He received his PhD in Finance from the University of Washington in ’99. Sarkissian’s research interests include Asset Pricing, Behavioural Finance, Financial Econometrics and International Finance. Jay Shanken Frontier Corporation Professor of Finance at the University of Rochester’s Simon School of Business. He did his M.A. in Mathematics at Cornell University and received his PhD in economics from Carnegie-Mellon University. His research interests include the Theory and Testing of Asset-Pricing Models and Market Efficiency, the Predictability of Stock Returns, Portfolio Management and Performance Evaluation. He was a Batterymarch Fellow and twice received the Roger F. Murray Prize of the Institute for Quantitative Research in Finance. Russ Wermers Associate Professor of Finance at the Robert H.Smith School of Business at the University of Maryland at College Park. The main research interests of Prof. Wermers include the Measurement and Attribution of the Performance of Pension Fund and Mutual Fund Managers. His research addresses whether professional investment managers who actively manage their portfolio can consistently beat the results of passively managed index funds. He won the New York Stock Exchange Award for Best Paper on Equity Trading in ’95. He is also a consultant for the pension fund and mutual fund industries.
doc_665770533.pdf
A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities.
___________________________________________________________________________
THE MUTUAL FUND INDUSTRY: INTERNAL AND EXTERNAL FACTORS OF PERFORMANCE
12 SEPTEMBER 2002 UNIVERSITY OF ZURICH
Aula (University Centre) Rämistrasse 71 CH-8006 Zurich
_________________________________________________________________________________________
BSI GAMMA Foundation (Global Asset Management Methods and Applications) is a private Swiss foundation established by BANCA della SVIZZERA ITALIANA (BSI SA). The National Centre of Competence in Research «FINANCIAL VALUATION AND RISK MANAGEMENT» (NCCR FINRISK) is a research programme supported by the SWISS NATIONAL SCIENCE FOUNDATION.
Conference Programme
8:45 Introductory Speech René Stulz (Ohio State University and President of BSI Gamma Foundation) Rajna Gibson (Director of the NCCR FINRISK)
Part I: Portfolio Allocation, Risk and Performance Evaluation of Mutual Funds 9:00 9:45 Philippe Jorion (University of California-Irvine) Enhanced Index Funds: Testing the Excess Return Optimization Theory Russ Wermers (University of Maryland at College Park) Style Drift
10:30 Coffee Break 11:00 Jay Shanken and Christopher S. Jones (University of Rochester) Mutual Fund Performance and Asset Allocation with Learning Across Funds 11:45 Narayan Y. Naik (London Business School) and Vikas Agarwal (Georgia State University) Characterizing Systematic Risk of Hedge Funds with Buy-and-Hold and Option-Based Strategies 12:30 Lunch Part II: Internal and External Factors in Mutual Funds Performance 14:00 Edwin J. Elton and Martin J.Gruber (New York University) Incentive Fees and Mutual Funds 14:45 David A. Latzko (Pennsylvania State University) Mutual Funds Expenses: An Econometric Investigation 15:30 Coffee Break 16:00 Alexander Kempf and Stefan Ruenzi (University of Cologne) Tournaments in the Mutual Funds Industry 16:45 Sergei Sarkissian and Susan Christoffersen (McGill University Montreal) Location Overconfidence 17:30 Cocktails Please register before 6. September! (best via email to the organizer)
NCCR FINRISK Administration Plattenstr. 14 CH-8032 Zurich E-Mail: [email protected] Tel. +41 (0)1 634 39 55 Fax +41 (0)1 634 43 45 http://www.nccr-finrisk.unizh.ch/ BSI GAMMA Foundation c/o BSI SA Via Magatti 2 CH-6901 Lugano E-Mail: [email protected] Tel. +41 (0)91 809 39 15 Fax +41 (0)91 809 39 39 http://www.bsi.ch/gamma
THE MUTUAL FUND INDUSTRY: INTERNAL AND EXTERNAL FACTORS OF PERFORMANCE
Due to the great transparency and quality of financial reporting, the mutual fund industry has been subject to a large amount of research, which has over time considerably extended our knowledge of the main elements of the industry. Issues like performance measurement, style, managers’ compensation have been explored by many contributions. In some cases the overall picture is clear. Some issues, however, remain obscure due to contrasting theoretical results. This conference brings together original pieces of research, which propose new interpretations of known facts and at the same time raise new questions. Some of the most relevant questions discussed: Are enhanced index funds efficient? How do we efficiently and effectively measure style by using portfolio data? What is the relevance of learning? How are hedge funds different from mutual funds? How do managers’ financial incentives affect portfolio and performance? Are there economies of scale? What is the relevance of factors like past performance, industry competition and location in financial centres? These are among the most important questions under discussion by investors, researchers, practitioners and regulators. This conference is likely to provide points of interest to most people looking at this industry from various perspectives. Greetings from René M. Stulz (Ohio State University and President of BSI Gamma Foundation) The mutual fund industry has grown dramatically over the last twenty years. Yet, there is much to learn about that industry. The BSI Gamma Foundation has provided support this year for twelve research projects by well-known academic scholars on the mutual fund industry. Eight of these projects are presented in this joint conference organized by the BSI Gamma Foundation and the NCCR “Financial Valuation and Risk Management”. The other four projects will be presented at the conference in Lugano on November 14. Each one of these projects provides valuable insights for academics and practitioners on issues concerning the mutual industry. These conferences will present great opportunities to learn about the latest mutual fund research and to exchange views on the management and the performance of mutual funds. Greetings from Rajna Gibson (Director of the NCCR FINRISK) The National Centre of Competence in Research “Financial Valuation and Risk Management” is very pleased to be associated with the BSI Gamma Foundation for the organization of this conference on the theme of mutual funds. We hope that, for the practitioners and the academics in the audience, the presentations and the discussions will offer new insights into the characteristics and the performance of the mutual fund industry. The Speakers Vikas Agarwal Assistant Professor of Finance at Georgia State University’s J.Mack Robinson College of Business. Vikas graduated from the PhD programme in finance at the London Business School in May 2001 and, earlier, completed his undergraduate degree in Mechanical Engineering and Masters in Management Studies in India. He worked as an executive for Larsen & Toubro, India, and a visiting faculty at K.J.Somaiya Institute of Management Studies and Research before obtaining a PhD in finance at the London Business School.Vikas’ research interests are broadly in the area of investments and asset pricing. In particular, his current research focus is in the area of alternative investment, evaluating the role of hedge funds in a prudent portfolio and understanding their risk-return characteristics.
Susan K. Christoffersen Assistant Professor of Finance at the McGill University Montreal. Previourly, she was a member of the Risk Management Project at the Financial Institutions Center and Teaching Assistant at the Wharton School. She also worked as Research Analyst for the International Economic Division at the Department of Finance of Canada and was Teaching Assistant at the Economics Department of the University of British Columbia. She holds a PhD in Finance and a Master of Finance from the University of Pennsylvania. Christoffersen’s research interests include Mutual Funds, Corporate Finance, Financial Institutions, and Investments. Edwin J. Elton Professor Elton has authored and co-authored eight books, including Modern Portfolio Theory and Investment Analysis, and written over 90 articles. He was formerly co-managing editor of The Journal of Finance and is currently associate editor of Journal of Banking and Finance, Journal of Accounting, Auditing and Finance. He served as a portfolio theory and investment management consultant for many major financial institutions in Asia, Europe and the United States. He was a senior researcher fellow at the International Institute of Management in Berlin. He received the Graham Dodd Award for research in investment and was named Distinguished Scholar by the Eastern Finance Association. He is a former president of the American Finance Association. Martin J. Gruber Professor of Finance at the Leonard N. Stern School of Business of New York University. He held an S.B. degree in Chemical Engineering from MIT and both an MBA in Production Management and a PhD in Finance and Economics from Columbia University. He is past president of the American Finance Association and served as Finance Department Chairman at NYU for eight years. He was also a director of the European Association and a founding member of the Asian Finance Association. He is a consultant in the areas of Investment Analysis and Portfolio Management in the United States, Asia and Europe. He is a member of The Board of Directors of Teachers Insurance Annuity Association, Deutsche Asset Management B.T. Mutual Funds and The Japan, Singapore and Thai Equity Fund, Inc. Christopher S. Jones Assistant Professor of Finance at the William E. Simon Graduate School of Business at the University of Rochester. He holds a PhD in Finance from the Wharton School, University of Pennsylvania. His research interests include Asset Pricing, Bayesian Analysis, Derivatives Pricing and Fixed Income. Philippe Jorion Professor of Finance at the Graduate School of Management at the University of California at Irvine. He holds an M.B.A. and a PhD from the University of Chicago, and a degree in engineering from the University of Brussels. He has authored more than fifty publications directed to academics and practitioners on the topics of risk management and international finance. His work received wide recognition, including the Smith Breeden Prize in ’99 which is awarded to the best papers in the Journal of Finance. He has also done extensive work in the area of Financial Risk Management with Derivative Instruments, and is known as an expert on the topic of Value at Risk. Alexander Kempf He held the Chair in Finance at the University of Cologne and is Director of the Finance Department. Prior to joining the University of Cologne, he taught at the University of Mannheim and held the Chair for Capital Market Theory at the Europe-University-Viadrina in Frankfurt. He received his PhD at the University of Mannheim. His current research interests include Asset Management, Mutual Funds, Asset Liquidity, Market Microstructure and Empirical Finance.
Narayan Y. Naik An Associate Professor of Finance and Director of the Center for Hedge Fund Research and Education at the London Business School. Educated at the Indian Institute of Technology in Bombay and at the Indian Institute of Management in Ahmedabad. He worked as a consultant for the World Bank before obtaining a PhD in Business Administration at the Duke University. Narayan joined the London Business School as an Assistant Professor of Finance on completing his PhD, and was promoted to Associate Professor in ’97. Over the last decade, he has played a key role in the development of the finance group at LBS, most notably in the position of Director of the PhD programme in Finance. Narayan’s research interests include Hedge Funds, Portfolio Selection, Risk Management and Market Microstructure David A. Latzko An Assistant Professor of Economics at the York Campus of the Pennsylvania State University. He previously taught at Wilkes University. He has published several articles on Economics History and Mutual Fund Cost. Stefan Ruenzi Works as a research assistant at the Department of Finance at the University of Cologne. He is currently doing his PhD on mutual funds. After finishing his studies in economics with a diploma degree at the University of Konstanz he joined the Department of Finance at the University of Cologne in April 2000. Beforehand Mr. Ruenzi spent his study abroad year at the University of Adelaide in South Australia in 1999. His current research interests include various aspects of the mutual fund business such as fee structures and compensation rules, as well as the theory of tournaments and its application to mutual funds. Sergei Sarkissian Assistant Professor of Finance, Faculty of Management at the McGill University Montreal. He received his PhD in Finance from the University of Washington in ’99. Sarkissian’s research interests include Asset Pricing, Behavioural Finance, Financial Econometrics and International Finance. Jay Shanken Frontier Corporation Professor of Finance at the University of Rochester’s Simon School of Business. He did his M.A. in Mathematics at Cornell University and received his PhD in economics from Carnegie-Mellon University. His research interests include the Theory and Testing of Asset-Pricing Models and Market Efficiency, the Predictability of Stock Returns, Portfolio Management and Performance Evaluation. He was a Batterymarch Fellow and twice received the Roger F. Murray Prize of the Institute for Quantitative Research in Finance. Russ Wermers Associate Professor of Finance at the Robert H.Smith School of Business at the University of Maryland at College Park. The main research interests of Prof. Wermers include the Measurement and Attribution of the Performance of Pension Fund and Mutual Fund Managers. His research addresses whether professional investment managers who actively manage their portfolio can consistently beat the results of passively managed index funds. He won the New York Stock Exchange Award for Best Paper on Equity Trading in ’95. He is also a consultant for the pension fund and mutual fund industries.
doc_665770533.pdf