An Analysis of the Mutual Fund Industry: Mutual Fund Investors, Mutual Fund Managers and Mutual ...

146 Pages·2012·1.06 MB·English

Jieyan Fang
An Analysis of the Mutual Fund Industry: Mutual
Fund Investors, Mutual Fund Managers and Mutual
Fund Companies

Inauguraldissertation
zur Erlangung des akademischen Grades
eines Doktors der Wirtschaftswissenschaften
der Universität Mannheim

vorgelegt im Sommersemester 2012
Dekan: Dr. Jürgen M. Schneider
Referent: Professor Dr. Stefan Ruenzi
Korreferent: Professor Dr. Erik Theissen
Tag der mündlichen Prüfung: 30. Mai 2012
献给我的妈妈和爸爸
ACKNOWLEDGEMENTS
This dissertation was completed at the University of Mannheim by mid 2012. It would not
have been successfully finished without the guidance and the help of many people.
Therefore, I would like to thank those people for their valuable contribution and assistance.
First and foremost, I would like to express my deepest gratitude to my supervisor, Prof. Dr.
Stefan Ruenzi, for his excellent guidance in the completion of my dissertation and offering
me a brilliant atmosphere for doing research.
I appreciate remarks and comments by Prof. Dr. Erik Theissen, my second examiner.
I would also like to thank Dr. Knut Griese and Prof. Dr. Alexandra Niessen-Ruenzi for their
valuable comments and insights. Discussions with them always helped me to revise and
improve my dissertation.
I also very appreciate my current and former colleagues, Alexander Hillert for his
outstanding support in the data collection, Dr. Knut Griese, Dr. Kerstin Drachter, Dr.
Philipp Finter, Dr. Meike Hagemeister and Daniel Simon for surviving tough times and
enjoying good times together.
My special thanks go to Stephen Huntze for his excellent proofreading and several student
assistants for their support in manually collecting the data needed.
Last but not the least, I would like to thank my parents Yin Zhou and Jing Fang for their
loving support and encouragement throughout my whole life. Without them this thesis
would have never been completed.
CONTENT
CONTENTS

1. GENERAL INTRODUCTION .................................................................................... 1
1.1. Motivation and Background ..................................................................................... 1
1.2. Levels of Analysis .................................................................................................... 5
1.3. Main Research Questions and Main Results ............................................................ 8
2. RAPID TRADING AMONG GERMAN EQUITY FUNDS .................................... 14
2.1. Introduction ............................................................................................................. 14
2.2. Data and Methodology............................................................................................ 18
2.3. Results ..................................................................................................................... 22
2.3.1. Performance Flow Relationship ....................................................................... 23
2.3.2. Evidence of Rapid Trading .............................................................................. 27
2.3.3. Determinants of Rapid Trading ........................................................................ 31
2.3.3.1. Proxies for Rapid Trading ......................................................................... 31
2.3.3.2. Proxies for Rapid Trading over a Year ...................................................... 32
2.3.3.3. Determinants of Rapid Trading and Explanations ..................................... 33
2.3.4. Influence of Rapid Trading .............................................................................. 40
2.4. Conclusion .............................................................................................................. 45
3. SMART OR DUMB? ASSET ALLOCATION ABILITY OF MUTUAL FUND
INVESTORS AND THE ROLE OF BROKER ADVICE ....................................... 48
3.1. Introduction ............................................................................................................. 48
3.2. Data and Methodology............................................................................................ 52
3.2.1. Data .................................................................................................................. 52
3.2.2. Summary Statistics ........................................................................................... 53
3.2.3. Measurement of Asset Allocation Ability........................................................ 55
3.2.4. Significance Tests ............................................................................................ 60
3.3. Empirical Results .................................................................................................... 60
3.3.1. Asset Allocation Ability of Aggregate Mutual Fund Investors ....................... 60
3.3.1.1. Evidence from Total Net Assets ................................................................ 60

I
CONTENT
3.3.1.2. Evidence from New Cash Flows ............................................................... 61
3.3.2. Asset Allocation Ability in Different Broker Channels ................................... 64
3.3.2.1. Evidence from Total Net Assets ................................................................ 64
3.3.2.2. Evidence from New Cash Flows ............................................................... 65
3.4. Additional Analysis ................................................................................................ 68
3.5. Conclusion .............................................................................................................. 69
4. FUND MANAGER ALLOCATION .................................................... 70
4.1. Introduction ............................................................................................................. 70
4.2. Data ......................................................................................................................... 74
4.3. Market Efficiency and Average Fund Performance of the Investment Grade and
the High Yield Corporate Bond Market ................................................................. 76
4.4. Managerial Skill, Market Efficiency and Fund Performance ................................. 78
4.5. Manager Allocation ................................................................................................ 81
4.6. Conclusion .............................................................................................................. 84
5. ENTREPRENEURSHIP IN THE MUTUAL FUND INDUSTRY ..... 86
5.1. Introduction ............................................................................................................. 86
5.2. Constructing the Dataset ......................................................................................... 91
5.3. Empirical Design .................................................................................................... 94
5.4. Results ..................................................................................................................... 98
5.4.1. Managerial Characteristics of Entrepreneurs ................................................... 98
5.4.2. Change in Behavior Due to the Transition from Agent to Principal.............. 106
5.5. Conclusion ............................................................................................................ 108
APPENDICES ........................................................................................... 109
REFERENCES .......................................................................................... 114

II
CONTENT
LIST OF TABLES

Table 2.1: Descriptive statistics ........................................................................................ 19
Table 2.2: Types of funds of the anonymous fund company and the enlarged sample .... 22
Table 2.3: Description of control variables ....................................................................... 24
Table 2.4: Performance flow relationship ......................................................................... 25
Table 2.5: Relationship between inflows and outflows .................................................... 29
Table 2.6: Relationship between inflows and outflows - sector funds & country funds .. 30
Table 2.7: Rapid Trading in each calender month ............................................................ 32
Table 2.8: Fund characteristics of rapid trading deciles ................................................... 34
Table 2.9: Determinants of rapid trading .......................................................................... 36
Table 2.10: Influence of rapid trading on fund performance .............................................. 42
Table 3.1: Summary statistics ........................................................................................... 54
Table 3.2: Average asset allocation weights of different portfolios ................................. 54
Table 3.3: Sharpe ratio of different portfolios with four asset classes .............................. 60
Table 3.4: Performance of net cash flow portfolios for all fund CF portfolio and the CF
benchmark ........................................................................................................ 62
Table 3.5: Sharpe ratio of different sales channel portfolios with four asset classes ....... 64
Table 3.6: Performance of net cash flow portfolios for different sales channels, especially
non-proprietary vs. proprietary brokers ........................................................... 66
Table 3.7: Performance and risk of asset allocation fund portfolio and other portfolios
with four asset classes ...................................................................................... 68
Table 4.1: Summary statistics ........................................................................................... 75
Table 4.2: Average performance of corporate bond funds ............................................... 78
Table 4.3: Impact of GMAT on alpha: overall analysis ................................................... 79
Table 4.4: Impact of GMAT on alpha: segment specific analysis .................................... 81
Table 4.5: Impact of GMAT on segment assignment ....................................................... 82
Table 5.1: New startups and founders (1980-2009) .......................................................... 92
Table 5.2: Founder characteristics vs. non-founder characteristics .................................. 94
Table 5.3: Performance and risk of would-be entrepreneurs ............................................ 99

III
CONTENT
Table 5.4: Demographic characteristics, education and experience of would-be
entrepreneurs .................................................................................................. 100
Table 5.5: Behavior and trading activity of would-be entrepreneurs ............................. 104
Table 5.6: Media coverage of would-be entrepreneurs................................................... 105
Table 5.7: Average before vs. average after ................................................................... 107

IV
CONTENT
LIST OF FIGURES

Figure 1.1: Development of the worldwide mutual fund industry from 1998 to 2010 ........ 3
Figure 1.2: Development of the mutual fund industry in the U.S. and in Germany from
1998 to 2010 ...................................................................................................... 4
Figure 2.1: Average monthly relative net flows, relative inflows and relative outflows ... 21
Figure 5.1: Number of startups and founders in different years ........................................ 93

V
CONTENT
LIST OF VARIABLES

Chapter 2
α: Regression constant
β: Regression coefficient
δ : Regression coefficient of kth piece in piecewise linear
k
regressions
γ: Regression coefficient vector of control variables
ε: Residual from a regression model
Adj.R2: Adjusted coefficient of determination from a regression
model
DAsia: Dummy variable that takes on the value 1 when fund i has an
i,m
investment focus in Asia in month m, 0 otherwise
DInt: Dummy variable that takes on the value 1 when fund i is an
i,m
internationally investing fund in month m, 0 otherwise
EuroOF : Euro outflows of fund i in month m
i,m
EuroIF : Euro inflows of fund i in month m
i,m
ExR : Excess return of fund i in month m compared to the average
i,m
return of all other funds in the same market segment and
month
FrontFee : Front-end load of fund i in month m
i,m
IF : Growth rate of inflows of fund i in month m
i,m
lnAge : Natural logarithm of age (in months) of fund i at the end of
i,m
month m
lnTNA : Natural logarithm of total net assets (in Euro) of fund i at the
i,m
end of month m
MgtFee : Management fees of fund i in year t
i,t

VI