International Fund Managers Research Articles

A comparison of investment behavior, attitudes, and demographics of socially responsible and conventional investors in India

PurposeIndia is an emerging economy and one of the preferred investment destinations for environmental, social and governance (ESG) fund issuers. Institutional investors invest retail investors’ money, and hence, it becomes imperative for ESG fund managers to understand the social investment preferences of retail investors. This study aims to compare the Indian socially responsible (SR) investors and conventional investors in terms of their socially responsible investment (SRI) awareness level, opinions about broad and specific ESG issues, investment behavior and demographics. In addition, this paper makes an attempt to have a deeper insight into Indian investors’ behavior toward SRI by segmenting the Indian retail investors based on their SRI awareness level, attitude toward ESG issues and intention to accept lower financial returns, and choices made by them as consumers.Design/methodology/approachAfter collecting the data through the survey method an independent t-test is used to compare SR investors with conventional investors. Chi-square has been used to analyze the data related to demographics, and cluster analysis is used to identify segments among Indian retail investors.FindingsThe results indicated that Indian SR investors’ SRI awareness level is more, they are more concerned about broad and specific ESG issues, they are more into faith-based investing, and are responsible consumers vis-à-vis conventional investors. As per demographic, SR investors are in the middle age group of 30–40 years, male, hold a postgraduate degree and have an annual income of 10–20 lakhs in comparison to conventional investors. The results of cluster analysis indicated that Indian retail investors can be classified into three groups based on their SRI awareness, intention to sacrifice financial return, attitude toward ESG issues and choices made by them as consumers.Research limitations/implicationsResults have implications for national and international fund managers, policymakers, regulators and society. These results will help mutual fund companies to provide curated SR mutual funds as per the behavior and choice of retail investors and penetrate the Indian investment market more deeply.Originality/valueThis research study contributes to the literature on SRI by identifying the differentiating characteristics of Indian SR and conventional investors and segmenting Indian retail investors on the basis of their SRI awareness, the importance of ESG issues and choices made by them as investors and consumers.

“A Start of Something Big”?

China’s move to deregulate its alternative asset management industry is paying off—both for fund managers courting the country’s wealthy potential clients and for investors seeking to diversify their holdings. In the year since the opening of the industry, the Asset Management Association of China (AMAC) has registered about 3,563 private fund managers. Collectively, these managers run 5,232 funds with assets totaling RMB1.98 trillion (US$322.3 billion). Thousands more licensing applications are in the works, according to AMAC, which is the self-regulatory body established to oversee the alternative asset industry on the mainland. China’s liberalization of its asset management market enables it to breed one of the world’s most vibrant private fund management businesses, which could eventually account for a large chunk of the US$70 trillion global fund management industry. Since the passage of the Securities Investment Fund Law in June 2013, more managers are opening their own securities trading accounts and running their own hedge fund platforms, abandoning the traditional structure of managing assets through government-backed trust funds. “The regulation is geared for Chinese local managers that want to do business locally or go overseas. The registration lends more credibility for these fund managers, especially when they do business with international investors,” says Joseph Zeng, CFA, partner at Greenwoods Asset Management, which manages more than US$4 billion in assets. Given the pace of wealth creation in China, the development was good news for the country’s high-net-worth investors and family offices. The lack of investment options has long been a challenge in the development of China’s capital markets, with choices for Chinese investors limited to bank savings, stocks, bonds, and property. Regulated hedge funds will give these investors easier access to new products and instruments and a chance to further diversify their portfolios. In 2013, hedge funds in China achieved some of the best returns in the world, with the average hedge fund gaining more than 19%, according to research firm Eurekahedge. This performance came in a year when the Shanghai stock market contracted nearly 7% in value and was among the worst-performing markets in the world. Even with such recent success among hedge funds, the reforms have a long way to go in transforming China into a major asset management hub. “There are still many uncertainties in the onshore management sector in China. We need much more clarification from the CSRC [China Securities Regulatory Commission] and the tax authority about what hedge funds are allowed to do,” says David Walter, the Singapore-based director of US-based fund-of-funds manager Pacific Alternative Asset Management Company (PAAMCO). “The currency capital account [situation in China] isn’t helping,” adds Walter, who predicts the asset management business in China will evolve in tandem with the opening up of China’s broader capital markets. Global institutions and international fund managers, however, are keeping tabs on the developments in the industry. They see these funds as a potential way to gain access to more than 2,500 companies listed on the mainland. Traditional hedge funds that run Chinese strategies outside China are sometimes limited to trading only 160 or so Chinese firms listed in Hong Kong, the United States, or the European Union.

Single and multiple risk factors in the Egyptian stock market

The return-risk trade-off of the 100 stocks contained in the Egyptian EGX100 index is examined. The Egyptian stock market has an average free float of only 45%. It is estimated that 50% of trading in the free float stocks is dominated by large investors, and local and international fund managers. The market suffers from low turnovers and more recently long periods of trade suspension after the political unrest of January 25th, 2011. The study finds that a serial correlated returns model is more suitable to estimate returns for low free float stocks in Egypt. However, it is unlikely that this serial correlation could lead to above average trading profits since it is a reflection of ownership concentration in a small illiquid market. The market offers diversification benefits due to its low correlation with major world indices. However, trade suspension due to political instability is an extra risk that could negate diversification benefits.

Dynamic Relatedness Analysis of Three Stock Market Return Volatility with a Factor of U.S. stock market:Empirical Study of Hong Kong, Japan, and Singapore Countries

This paper studies the associations among and the model construction of Hong Kong, Japan, and Singapore’s stock markets. In this paper we construct a dynamic conditional correlation (DCC) and a trivariate IGARCH (1, 1) model to evaluate the associations, and find that there does not exist an asymmetrical effect among the three stock markets with a factor of U.S. stock market. The result of empirical correlation analyses also shows that Japan’s stock market returns positively affect the Hong Kong and Singapore stock market returns, and the volatility of the three stock market returns interact with one another. Furthermore, the time lags of Hong Kong stock market returns do not affect the returns of the Japanese and Singapore stock markets. The variation risk of the Japan stock market returns’ volatility affects the variation risks of Hong Kong and Singapore stock market returns. Empirical results also show that both good and bad news will actually affect the variation risks of stock market returns. Therefore, based on the viewpoint of DCC, the explanatory ability of the trivariate IGARCH(1, 1) model is better than the model of the trivariate GARCH with a constant conditional correlation. The evidence suggests that stock market investors or international fund managers must evaluate the variation risk and relationships of the stock market returns’ volatility.

Addressing the Psychology of Financial Markets

Abstract The author suggests that the 2008 financial crisis was the culmination of an accelerating and inherently unstable process of financial market evolution. He argues that markets are not well organized to manage the power that financial assets have to generate emotion and their wider effect on human imagination and judgement, anchored in neurobiology. Judgements and decisions about risk, reward and the evaluation of success can become systematically compromised because the excitement of potential gain is disconnected from anxiety about potential consequences, producing groupthink and bubbles. When anxiety breaks through, a catastrophic loss of confidence is inevitable. In the aftermath the emotional pain that would be involved in accepting responsibility stands in the way of lessons being learned. The author’s theoretical framework is influenced by modern psychoanalysis and draws on an interview study of international fund managers in 2007. He suggests that underlying psychological conflicts have influenced the way market institutions have evolved to compete by selling the promise of exceptional performance. To cope with the expectations upon them, agents are impelled to base their actions on stories which overvalue opportunities and underestimate risks; this creates agency issues and facilitates the process of disconnecting anxiety from excitement that creates bubble potential. Policy implications go well beyond improving regulation and transparency. Special issue Managing Financial Instability in Capitalist Economies

A DCC Analysis of Two Stock Market Returns Volatility with an Oil Price Factor: An Evidence Study of Singapore and Thailand’s Stock Markets

This paper uses the Singapore and the Thailand's stock prices of material from January 4, 2000 to July 20, 2007, discussing the model construction and their associations of between Singapore and Thailand's stock markets, and also uses Student's t distribution to analyze the proposed model. The empirical results show that the mutual affects of the Singapore and the Thailand's stock markets may construct in bivariate IGARCH (1, 1) model with a DCC. The empirical result also shows that between Singapore and Thailand's stock market returns exists the positive relations- namely two stock market return's volatility are synchronized influence, the average estimation value of the DCC coefficient of two stock market returns equals to 0.3876. Also, Singapore and Thailand's stock markets do not have the asymmetrical effect in the research data period. These evidences may suggest stock market investors or international fund managers- before investing in Singapore must consider the Thailand stock price return's volatility risk and its connection. Therefore, in the stock market, investors and managers may not neglect the influence of the foreign country's stock market return volatility behavior; otherwise, his decision will not achieve the anticipated effect.

Addressing the Psychology of Financial Markets

The author suggests that the 2008 financial crisis was the culmination of an accelerating and inherently unstable process of financial market evolution. He argues that markets are not well organized to manage the power that financial assets have to generate emotion and their wider effect on human imagination and judgement, anchored in neurobiology. Judgements and decisions about risk, reward and the evaluation of success can become systematically compromised because the excitement of potential gain is disconnected from anxiety about potential consequences, producing groupthink and bubbles. When anxiety breaks through, a catastrophic loss of confidence is inevitable. In the aftermath the emotional pain that would be involved in accepting responsibility stands in the way of lessons being learned. The author's theoretical framework is influenced by modern psychoanalysis and draws on an interview study of international fund managers in 2007. He suggests that underlying psychological conflicts have influenced the way market institutions have evolved to compete by selling the promise of exceptional performance. To cope with the expectations upon them, agents are impelled to base their actions on stories which overvalue opportunities and underestimate risks; this creates agency issues and facilitates the process of disconnecting anxiety from excitement that creates bubble potential. Policy implications go well beyond improving regulation and transparency. --

A double-threshold GARCH model of stock market and currency shocks on stock returns

International integration of financial markets provides a channel for currency movements to affect stock prices. This paper applies a four-regime double-threshold GARCH (DTGARCH) model of stock market returns to investigate empirically the effects of daily currency movements on five stock market returns, namely in Taiwan, Singapore, South Korea, Japan and the USA. The asymmetric reactions of the mean and volatility stock returns in five markets to stock market and foreign exchange news are investigated using linear and nonlinear models. We discuss a four-regime DTGARCH model, which allows for asymmetry in both the conditional mean and conditional variance simultaneously by using two threshold variables to analyze stock market reactions to different types of information (that is, positive and negative news) that are generated from stock and foreign exchange markets. By applying the four-regime DTGARCH model, this paper finds that the interactions between the information of stock and foreign exchange markets lead to asymmetric reactions of stock returns and their associated variability. The empirical results show that international fund managers who invest in newly emerging stock markets need to evaluate the value and stability of domestic currencies as part of their stock market investment decisions.

Cointegration of Asian Markets with US Markets

International diversification of portfolios has always been an area of great concern for international fund managers and researchers. There is considerable academic research that documents the benefits of international diversification. There is a large body of financial literature, which studies the existence of inter-linkages among international capital markets since such linkages have serious implications for portfolio diversification as well as macroeconomic policies of the countries concerned. Investors who buy shares in foreign as well as domestic companies seek to reduce market risk and reap rewards through global diversification. Such diversification pays so long as various national markets are not perfectly correlated. There are studies marking the beginning of an extensive literature in financial economics on international diversification. Over the last decade, it is found that the international diversification benefits to global investing are not constant, and due to process of globalization and global linkage among the global markets, they are diminishing compared to the rest of capital market history. The increasing correlation among the developed and emerging markets has restricted the scope for international diversification over last few years. This article attempts to examine the integration structure of the major world equity markets in the era of globalization. The study suggests that integration vary considerably through time and are highest during last few years. The analysis suggests that the periods of globalization have both benefits and drawbacks for international investors. They expand the opportunity set, but diversification relies increasingly on investment in emerging markets.

Fund management opportunities in China's pension market

This paper examines China's current pension system and the potential asset accumulation in its various schemes, and assesses the opportunities for local and international fund managers. It provides an overview of the fund management industry as it exists today, including the role of Sino-foreign joint ventures (JVs), and considers the increasing competition as banks and insurance companies enter the industry.

Timing and selectivity in Portuguese mutual fund performance

We extend the international evidence on timing and selectivity skills of fund managers by applying the Henriksson and Merton [Henriksson, R., Merton, R., 1981. On market timing and investment performance. II. Statistical procedures for evaluating forecasting skills. J. Bus. 54, 513–533] model to Portuguese based mutual funds investing in local, European and International equity. The results show that managers do not exhibit selectivity and timing abilities, and there is even some evidence of negative timing. Furthermore, we observe a distance effect on stock selection performance, since fund managers that invest locally seem to perform better that those who invest in foreign markets. However, this effect is reverted with respect to market timing skills of fund managers, suggesting that International fund managers are more focused in market timing strategies.

Macroeconomic Variables as Common Pervasive Risk Factors and Empirical Content of the Arbitrage Pricing Theory in Pakistan

The Arbitrage Pricing Theory (APT) of Ross [1976] is one of the most important building blocks of modern asset pricing theory, and the prime alternative to the celebrated Capital Asset Pricing Model (CAPM) of Sharpe [1964], Lintner [1965], and others. This paper briefly reviews the theoretical underpinnings underlying the APT and highlights the econometric techniques used to test the APT with pre-specified macroeconomic factors. Besides this, the prime objective of this study is to perform an empirical test of the APT in the Pakistani stock market by using pre-specified macroeconomic factors and employing Iterative Non-Linear Seemingly Unrelated Regressions (ITNLSUR). These empirical results will be, hopefully, helpful for corporate managers undertaking cost of capital calculations, for domestic and international fund managers making investment decisions and, amongst others, for individual investors who wish to assess the performance of managed funds.

International mutual fund selectivity and market timing during up and down market conditions

AbstractThis study examines the selectivity and market‐timing ability of international mutual fund managers. Ninety‐seven international mutual funds with a minimum of five‐year return history selected from the Morningstar OnDisc database are analyzed. Our findings suggest that managers of international mutual funds possess good selectivity and overall performance. We also find weak evidence of poor market‐timing ability. Consistent with prior findings from domestic mutual funds, there is a negative correlation between the international fund managers' selection ability and market‐timing ability. Finally, managers for Europea funds show poorer performance than those managing the other three international fund groups.