Investment Skills Research Articles

How does venture capital spur the innovation of environmentally friendly firms? Evidence from China

Previous literature has discussed the relationship between venture capital (VC) and green innovation; however, green innovation is seldom noted as having been created by both environmentally friendly and pollution-intensive firms, even though most VCs are actually invested only in environmentally friendly firms. Thus, this study focuses on the relationship between VC and the green innovation of environmentally friendly firms. The analysis combines traditional patent data with homogenous citation data to jointly examine the quantity and quality of VC-funded firms' green innovation. Results suggest that VC support not only improves firms' success rate of patent application but also increases the innovation “value” represented by increased citation. The Chinese government has asked government VC (GVC) to be a long-term strategic investment for environmentally friendly firms. However, we found that GVC negatively affects green innovation, which may be caused by the risk aversion and adverse selection of the GVC manager. By comparing the roles of experienced foreign VC and full-sample VC, we confirmed that the investment skills of developed countries could enhance the quantity and quality of green innovation in China.

FACTORS INFLUENCING INDIVIDUALS’ SHORT-TERM INVESTMENT INTENTIONS

This article aimed to determine what drives investors short-term intention to invest following a more sociological and behavioural approach by including investor personality traits, behavioural finance biases these investors could be subject towards, and their risk tolerance behaviour. Based on the complexity of the variables a multivariate statistical approach was preferred. Therefore, a structural equation model (SEM) was employed and proved to be a good model for the data. Secondary data was obtained from a pre-collected survey by a private investment firm for research purposes. The results indicated that investors who have strong extraversion, agreeableness and openness to experience personality traits will be more likely to invest in short-term investment portfolios. From the nine behavioural finance biases, one bias significantly explained investors short-term investment intentions. Investors who are overconfident in their investment skills tend to invest more in the short-term. It is therefore recommended to portfolio management companies that several sociological and behavioural variables do explain whether investors will be willing to invest in short-term or more long-term investment portfolios.Keywords: risk tolerance, behavioural finance biases, personality traits, short-term investmentJEL Classifications: A14, G11, G41DOI: https://doi.org/10.32479/ijefi.11449

Are mutual fund manager skills transferable to private funds?

We evaluate how work experience in mutual funds affects manager skills after they switch to private funds. Using a proprietary Chinese private fund database from 2012 to 2016, we document that, despite their work experience in mutual funds, switched private fund managers significantly underperform compared with their peer managers in private funds. In particular, the investment skills of smart managers with superior track records in mutual funds deteriorate after the career switch. Moreover, the reduction in skills of smart managers is mainly attributable to the loss of corporate research support in private funds. Our findings demonstrate that the skill sets of mutual fund managers are hardly transferable to the private fund industry.

Deriving managerial skills by dissecting holding changes of mutual funds: Evidence from China

How to select a skilled fund is important for mutual fund investors. We hypothesize that the changes of a fund's holding reflect the fund's investment skills irrespective of the nature of the fund's skills. Accordingly, we propose three skill measures of a fund by comparing the performance of a fund's latest stock holdings with the performance of its previous stock holdings in the China's A-shares market over a six-month period. The three skill measures include the difference in performance during the whole period, around the earnings announcement period, and during the period that excludes the earnings announcement period. Consistent with our hypothesis, these measures successfully identify the funds that perform better in the following six months. Comparing these measures with the return gap proposed by Kacperczyk et al. (2008), we find that our measures emphasize the medium-term trading skills while the return gap focuses on the short-term trading skills. Furthermore, our results suggest that fund investors can improve their performance by utilizing funds' short-term and medium-term trading skills. However, since the better performance of a fund as identified by our skill measures disappears after six months, fund investors who apply our skill measures must evaluate funds every six months to achieve better performance.

Do visiting monks give better sermons? An analysis of the foreign experience of Chinese fund managers

This paper investigates the value of foreign experience in the investment community of developing countries. By using fund flows as a proxy for investor preference, we demonstrate that fund managers with foreign experience gain more recognition from investors in China. However, this preference is more likely to be a sort of bias since we find no evidence of superior investment skills of these managers, especially when they tilt portfolio allocations in domestic equities. The findings in our paper imply that investors in emerging markets are under the foreign experience illusion and that foreign experience can add to human capital in the mutual fund industry via increasing the popularity rather than improving the return performance of a fund.

Do visiting monks give better sermons? An analysis of the foreign experience of Chinese fund managers

This paper investigates the value of foreign experience in the investment community of developing countries. By using fund flows as a proxy for investor preference, we demonstrate that fund managers with foreign experience gain more recognition from investors in China. However, this preference is more likely to be a sort of bias since we find no evidence of superior investment skills of these managers, especially when they tilt portfolio allocations in domestic equities. The findings in our paper imply that investors in emerging markets are under the foreign experience illusion and that foreign experience can add to human capital in the mutual fund industry via increasing the popularity rather than improving the return performance of a fund.

Bitcoin investment: a mixed methods study of investment motivations

ABSTRACT Bitcoin is a well-established blockchain-based cryptocurrency that has attracted a great deal of attention from media and regulators alike. While millions of individuals invest in bitcoin, their motivations for doing so are less clear than with traditional investment decisions. We argue that the technical nature of bitcoin investments gives it unique characteristics and, consequently, that we lack a thorough understanding of how this affects the motivations behind bitcoin investment. We use a mixed method approach consisting of qualitative (n = 73) and quantitative (n = 150) studies and fuzzy-set qualitative comparative analysis (fsQCA) to identify seven bitcoin-specific motivations (profit expectancy, ease of bitcoin acquisition, support of bitcoin ideology, investment skills, risk affinity, anticipated and experienced inaction regret) and how configurations of them explain bitcoin investment. The findings reveal, among others, that some individuals invest in bitcoin because they support the bitcoin ideology. Contrary to the traditional investment literature, profit expectancy is not a necessary condition to the extent that there is one empirical configuration of motivations that explains that individuals also invest in bitcoin even if they do not expect profits. The results disclose non-trivial investment motivation configurations and lay the groundwork for future studies of the role of cryptocurrencies in society.

Membership Characteristics and Financial Performance of Investment Groups Investing in Securities Market in Kenya

Investment groups provide a system of mobilizing together capital, lowering risks per individual and availing cheap capital for microenterprise growth. How the membership structure dimensions of an investment group affect its financial makeup is not well understood. The objective of the study was to assess the role of membership characteristics in the financial performance of investment groups in Kenya. Descriptive survey design was used and stratified sampling technique applied to select group members and investment groups. The data collected was analyzed using inferential statistics via regression analysis. The results indicate that group membership structure dimensions, such as experience, gender, occupation, business training and ethnic diversity, has a positive and statistically significant effect on financial performance of investment groups, which participate in securities markets in Kenya. Policies that entrench gender issues in investment groups and encourage creation of investment groups which are ethically balanced and occupationally diverse are critical in the success of such groups. Policies should be crafted by the investments group lobby outfits, which will facilitate training programs and forums to educate the members on investment skills and proper management practices as well as need for diversification of group investment portfolios. Keywords: Group Membership Characteristics; Group Financial Performance; Group Ethnic Diversity; Kenya Association of Investment Groups; Chama Investments. DOI: 10.7176/JESD/11-10-15 Publication date: May 31 st 2020

Trading Skills in Mutual Funds - Evidence from Daily Transactions

Using a proprietary dataset of daily mutual fund trades, we document strong evidence of manager skills in the Finnish market for both buys and sells. We find that manager’s risk-adjusted outperformance lasts up to five days. Additionally, we find that the capital-weighted average of trade returns for bought stocks is positively correlated with funds’ net alphas. We explain fund performance with several stock and fund characteristics and document a positive correlation between the invested net capital in each trade and trading profits. These results show that mutual fund managers provide value to their clients through above par investment skills.

Does Chief Investment Officer Pay Reflect Performance? Evidence from Non-profits

This paper examines the compensation of Chief Investment Officers (CIOs) of nonprofit endowments, which have different economic models and monitoring arrangements than those of other institutional investors. We find that compensation reflects the demands of the job, abilities and experience that individuals bring to the job and how well the endowment performs. Pay relies heavily on bonuses and is positively linked to the CIO's education and professional experience. Large endowments hire CIOs with stronger backgrounds, pay them more and structure pay significantly linked to endowment performance. Even controlling for size, compensation depends on an endowment’s governance and location. The results are consistent with the increased investment skills needed to manage large pools of capital often involving alternative assets, and with differences in labor market and monitoring arrangements across endowments. For large endowments the sensitivity of pay to performance is greater than often reported for mutual fund managers.

Influence of Investment Skills on Long Term Performance of Athletes in Elgeyo Marakwet County, Kenya

The study set out to address the effect of poor long term financial performance of athletes in Elgeyo Marakwet County. The purpose of the study was to assess effect of investment skills on long term financial performance of Kenyan athletes of Elgeyo Marakwet County, Kenya. The objective was to establish levels of influence of investment skills on long term financial performance of athletes. The study was carried out in Elgeyo Marakwet County which is one of the 47 Counties of Kenya. In regard to establishing levels of influence of investment skills on long term financial performance of athletes in Elgeyo Marakwet County, the study established that 63% did not have savings accounts, thus revealing a poor saving culture against those who had savings accounts at 37% respectively. The study also revealed that majority of the respondents at 62% did not have retirement accounts against only 38% who had retirement accounts. The government, both County and National should ensure favorable policy based conditions and regulations to ensure athletes invest locally for posterity and sustainability. Furthermore, the government should encourage investment advisory extension services across the community.

Transparency and Talent Allocation in Money Management

AbstractWe construct and analyze the equilibrium of a model of delegated portfolio management in which money managers signal their investment skills via fund transparency. To lower the costs of transparency, high-skill managers rely on their performance to separate from low-skill managers over time. In contrast, medium-skill managers rely on transparency to separate, especially when it is difficult for investors to tell them apart through performance alone. Low-skill managers mimic high-skill managers in opaque funds, hoping to replicate their performance and compensation. The model yields several novel empirical predictions that contrast transparent and opaque funds.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Reckless financial behaviors: An exploratory life course study of French and American consumers

ABSTRACTAchieving financial solvency has been viewed as a desirable life goal, because financial satisfaction promotes well-being. The vast majority of personal finance studies have attempted to understand the factors that promote saving and investment habits and skills, but studies that examine the factors that inhibit people’s abilities to achieve financial solvency are sparse. This paper reports the results of a study designed to understand the development of financial behaviors that are labelled as “reckless” because they undermine the person’s ability to achieve financial solvency. Because substantial evidence shows that personal finance habits begin to develop in early life and change throughout life, the present study uses the life course approach to examine the effects of select factors suggested by life course theory on the person’s propensity to exhibit financial behaviors that sabotage financial solvency at three stages in life. The influence of these factors is examined across three cohorts of US and French consumers using data collected from two online surveys. The findings of this exploratory study suggest the value of studying financial habits that impede financial solvency in time and context.

Trade Less and Exit Overcrowded Markets: Lessons from International Mutual Funds*

Abstract We study active investment skills in relation to returns to scale in the active mutual fund industry. Using a sample of 13,807 funds from sixteen domicile countries investing in forty-two equity markets from 2001 to 2014, we find that they achieve negative trading performance on average, driven mainly by particularly low returns to their trades in US equities. Exploring their investment environment, we find convincing evidence of decreasing returns to scale around the world, especially for the US market. Based on theory of optimal fund size, we estimate the optimal size of the active mutual fund industry. We find that the active mutual fund industry in USA has exceeded the optimal level, whereas in the international markets, there may still be room for further expansion. Consistent with this view, we find that mutual fund managers have been gradually reallocating their assets away from the USA and more into international equity markets.

Does Mutual Fund Working Experience Affect Private Fund Performance?

We evaluate how work experience in mutual funds affects manager skills after they switch to private funds. Using a proprietary Chinese private fund database from 2012 to 2016, we document that, despite their work experience in mutual funds, switched private fund managers significantly underperform compared with their peer managers in private funds. In particular, the investment skills of smart managers with superior track records in mutual funds deteriorate after the career switch. Moreover, the reduction in skills of smart managers is mainly attributable to the loss of corporate research support in private funds. Our findings demonstrate that the skill sets of mutual fund managers are hardly transferable to the private fund industry.

Patrystyczny przedsiębiorca. Pojęcie działania przedsiębiorczego w świetle pism wybranych pisarzy wczesnochrześcijańskich

W bogactwie i różnorodności myśli patrystycznej znajdujemy wiele odniesień do życia gospodarczego i przedsiębiorczego. Problematyka ta, mimo że nie zyskała u autorów wczesnochrześcijańskich spójnej formy, w postaci traktatów ekonomicznych czy nawet teologicznych, to jednak nie była im obca.W swoich pismach autorzy ci prezentują szerokie odniesienie do problemów ekonomicznych i polityki gospodarczej współczesnego im społeczeństwa. Kreślą także pewną ideę działania przedsiębiorczego, typową dla kupców i ludzi bogatych. Dostrzegają płynące z tej aktywności zarówno niebezpieczeństwa, jak i korzyści.Podkreślają, że konieczne jest nie tyle zreformowanie owego ekonomicznego mechanizmu działania kupieckiego – przedsiębiorczego, który ze swej natury był im obcy, ile bardziej dostrzeżenie potrzeby przemiany moralnej i etycznej kupca, bogacza – przedsiębiorcy, który działa w strukturze owego mechanizmu. Chodzi zatem o pogodzenie ze sobą naturalnej tendencji jednostki do bogacenia się i pomnażania dóbr z troską o jej osobiste uświęcenie i o dobro wspólne. „Patrystyczny przedsiębiorca” ma być człowiekiem cnoty, który kieruje się zasadą wzajemności, solidarności i pomocniczości. Więcej, wydaje się, że dynamizm przedsiębiorczy nie może być obcy żadnemu wierzącemu. Każdy bowiem winien mieć coś z kupieckiego, przedsiębiorczego ducha, tj. posiąść tajemnicę inwestowania, ryzyka, zysku, aby pomnażając i rozdając hojnie swoje bogactwa materialne, wzrastać w bogactwie duchowym, w cnocie i w ten sposób przemieniać gospodarczą rzeczywistość rynku.

Sensation Seeking and Hedge Funds

ABSTRACTWe show that, motivated by sensation seeking, hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios, information ratios, and alphas. Moreover, sensation‐seeking managers trade more frequently, actively, and unconventionally, and prefer lottery‐like stocks. We show further that some investors are themselves susceptible to sensation seeking and that sensation‐seeking investors fuel the demand for sensation‐seeking managers. While investors perceive sensation seekers to be less competent, they do not fully appreciate the superior investment skills of sensation‐avoiding fund managers.

Active Fundamental Performance

We propose a new measure, active fundamental performance (AFP), to identify skilled mutual fund managers. AFP evaluates fund investment skills conditioned on the release of firms’ fundamental information. For each fund, we examine the covariance between deviations of its portfolio weights from a benchmark portfolio and the underlying stock performance on days when firms publicize fundamental information. Because asset prices on these information days better reflect firm fundamentals, AFP can more effectively identify investment skills. From 1984 to 2014, funds in the top decile of high AFP subsequently outperformed those in the bottom decile by 2% to 3% per year. Received August 25, 2016; editorial decision December 17, 2017 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Learning about individual managers’ performance in UK pension funds: The importance of specialization

This study examines the performance of managers over time, as well as its persistence, taking into account both manager characteristics and market conditions. Applying parametric and non-parametric methodologies, we examine a sample of UK equity pension fund managers. Our results help to understand the importance of manager assignments in the industry and reveal the importance and benefits of management specialization. We find certain manager performance persistence, revealing that some managers are better than others and possess superior investment skills. Additionally, we find that managers achieve better results when they run a single fund or one investment-objective funds, which allows managers to focus on specific tasks. Nonetheless, manager performance varies with market conditions and highlights managers’ different skills. Specialist managers perform better in bullish markets, and generalists perform better in bearish periods.

Relying on Others' Investment Skills: About the Dynamics of Relationships in Social Trading Networks

Opinion leaders of an investment network can have a significant impact on capital markets because their investment decisions are adopted by their peers and trigger large trading cascades, increasing herding behavior and comovement among stock returns. This paper analyzes the interaction-based relations of traders from a large social trading platform and identifies the driving forces and the opinion leaders within a large online trading network as the nodes with the highest centrality and the highest force of infection, respectively. Relying on recent insights from epidemiological research, I maintain that centrality identifies the most central traders in the network, while the expected force quantifies the most influential traders and their spreading power. I study the behavior and characteristics that set central and influential traders apart from other traders. The ability to identify focal points and their trading behavior within a trading network is important for investors, investment advisers, and policy makers.