Spanish Mutual Funds Research Articles

Does the size of a fund family matter when choosing an investment strategy? Evidence from spain

This paper aims to determine whether the size of a fund family influences investment strategy (stock picking or market timing) in the Spanish mutual fund market. This is a highly concentrated market, being controlled by two banks with a percentage of 46%. The impact of considering time-varying returns and risks on selectivity and market timing results is also assessed. Our results indicate that large management companies follow a market timing strategy, while small management companies are better at stock picking. These results are more obvious when conditional information is included. Additional tests are carried out to check the robustness of our results. We observe that the results obtained for large and small management companies are maintained when we control for fund size and when we introduce additional benchmarks into the timing model. However, when the time period is divided into two subperiods, the results are no longer robust. This may be connected to the evolution of returns in the Spanish market.

TSD-consistent performance assessment of mutual funds

This paper presents three new data envelopment analysis-based approaches to assess the relative efficiency of mutual funds (MFs). Each model considers an appropriate risk measure as input and an appropriate return measure as output. The risk and return measures have been chosen so that the proposed models are consistent with third-order stochastic dominance (TSD) rules. This means that the MFs found efficient by the proposed models are also, in a necessity condition sense, TSD efficient and therefore of highest consideration for all non-satiated, risk averse investors that also have decreasing absolute risk aversion. The proposed approach is illustrated with real data on a set of Spanish MFs and compared with existing approaches from the literature based on Mean–Variance and Mean–Variance–Skewness models.

Do Spanish mutual fund managers use public and private information correctly? Use of information in mutual fund management

In this work, we evaluate the use of public and private information by Spanish fund managers by means of an analysis of their traditional and conditional performance. Furthermore, we repeat this analysis for various fund subsets compiling their different characteristics, which allows us to determine the impact of diverse effects on performance. In addition, we restrict this analysis to the fund subset for which public information variables show a high predictive power. Prior to the model application, we develop an analysis of the integration order of variables and of multi-collinearity to assure models work well.

The importance of information technologies in the ability of fund managers to time the market

This paper compares the performance results of Spanish mutual fund managers and the market timing results obtained using traditional measures and those obtained using measures that consider time variations in returns and risks by incorporating macroeconomic variables representative of Spanish business cycle. We demonstrate that the incorporation of such variables improves the explanatory power of the different models analysed, thus confirming the existence of a relationship between said variables and expected investment fund returns. We, therefore, emphasise and analyse the importance of using information systems, such as the balanced scorecard, which permit a management in real time of that relationship.

The Use of Derivatives in the Spanish Mutual Fund Industry

We study the use of derivatives in the Spanish mutual fund indus- try. The picture that emerges from our analysis is rather negative. In general, the use of derivatives does not improve the performance of the funds. In only one out of eight categories we find some (very weak and not robust) evidence of superior performance. In most of the cases users significantly underperform non users. Furthermore, users do not seem to exhibit superior timing or se- lectivity skills either, but rather the contrary. This bad performance is only partially explained by the larger fees funds using derivatives charge. Moreover, we do not find evidence of derivatives being used for hedging purposes. We do find evidence of derivatives being used for speculation. But users in only one category exhibit skills as speculators. Finally, we find evidence of derivatives being used to manage the funds' cash inflows and outflows more e! ciently.

Seasonality, Market Timing and Performance Amongst Benchmarks and Mutual Fund Evaluation

Abstract: Mutual fund performance is normally measured by comparing results of active management with those obtained by one or several benchmarks that should represent the fund's investment. In this context, this paper examines the effect on mutual fund assessment if a relevant benchmark is omitted. This effect is analysed in three elements of active management: stock selection, market timing, and seasonality. The latter is defined as fund management at specific moments of time with the objective of achieving positive abnormal returns to improve performance. For a sample of Spanish mutual funds, we find that the omission of style benchmarks, particularly that corresponding to small‐cap stocks, leads to greater evidence of negative market timing and positive seasonality at year beginning. However, the positive abnormal returns of the seasonality at year end, month end and especially at the beginning of July hold regardless of benchmark omission. The paper therefore also analyses the relation between performance and seasonality, finding that positive seasonality at year beginning and at July beginning improves performance; however, at other moments it implies a possible window dressing strategy in mutual fund management.

Self-organizing maps could improve the classification of Spanish mutual funds

In this paper, we apply nonlinear techniques (Self-Organizing Maps, k-nearest neighbors and the k-means algorithm) to evaluate the official Spanish mutual funds classification. The methodology that we propose allows us to identify which mutual funds are misclassified in the sense that they have historical performances which do not conform to the investment objectives established in their official category. According to this, we conclude that, on average, over 40% of mutual funds could be misclassified. Then, we propose an alternative classification, based on a double-step methodology, and we find that it achieves a significantly lower rate of misclassifications. The portfolios obtained from this alternative classification also attain better performances in terms of return/risk and include a smaller number of assets.

Performance evaluation considering the coskewness

PurposeThe paper aims to examine the performance of Spanish mutual funds between 1999 and 2003.Design/methodology/approachThe methodolgy uses the stochastic discount factor (SDF) framework across a variety of models developed in the recent asset pricing literature. This approach is a fairly recent innovation in the evaluation of investment performance.FindingsThe present work complements the research of Farnworth et al. and Fletcher and Forbes, adding a new issue to the SDF, the third co‐moment of asset returns. Recent asset pricing studies show the relevance of the component of an asset's skewness related to the market portfolio's skewness, the coskewness, and how it helps to explain the time‐variation of ex‐ante market risk premiums. It is found that the effects of adding coskewness to evaluate the performance is significant even when factors based on size, book‐to‐market and momentum are included.Practical implicationsThe omission of a coskewness factor may lead to erroneous evaluations of a fund's performance, and therefore, issues such as the persistence of performance should be revised.Originality/valueThis paper explores, for the first time, the effects of incorporating a coskewness factor in the analysis of investment performance, both in an unconditional and a conditional framework using SDF models.

Mutual fund performance and benchmark choice: the Spanish case

This study deals with the relevance of benchmark choice for mutual fund performance behaviour, completing previous research on the Spanish Mutual Fund Market. Using Jensen's and Treynor–Mazuy's measures, the study highlights the relevance of style analysis for benchmark election in order to evaluate fund managers.

Evaluation of performance and conditional information: the case of Spanish mutual funds

The performance of Spanish domestic equities improves considerably when diverse public information variables are taken into consideration. We have taken up to eight independent variables into consideration to evaluate the performance of a largely unexplored market over a broad horizon.

Effects of multicollinearity on the definition of mutual funds’ strategic style: the Spanish case

This study is an approach to the strategic styles followed by Spanish mutual funds investing in domestic equities. The methodology applied is based on Sharpe's suggested Style Analysis. The study highlights the distortion of results caused by the phenomenon of multicollinearity in the benchmarks proposed.

Spanish Mutual Fund Misclassification

Mutual fund classifications are a tool for defining fund characteristics for marketing and comparison purposes. If fund managers can manipulate the characteristics of mutual fund portfolios for financial incentives, they may convey confusing signals that encourage investors to select funds not appropriate to their needs. Analysis of a database of Spanish mutual funds to see whether funds in the same category are comparable and whether funds in different categories are indeed different shows that 33% of funds are misclassified. This result demonstrates the weaknesses of current classification systems in providing a reliable reference for fund evaluation and selection.

What Stocks Appeal to Institutional Investors?

Mutual fund classifications are a tool for defining fund characteristics for marketing and comparison purposes. If fund managers can manipulate the characteristics of mutual fund portfolios for financial incentives, they may convey confusing signals that encourage investors to select funds not appropriate to their needs. Analysis of a database of Spanish mutual funds to see whether funds in the same category are comparable and whether funds in different categories are indeed different shows that 33% of funds are misclassified. This result demonstrates the weaknesses of current classification systems in providing a reliable reference for fund evaluation and selection.

Legal constraints, transaction costs and the evaluation of mutual funds

The paper considers the legal restrictions on investment and the transaction costs related to optimal turnover that affect mutual funds. A method is developed for mutual fund performance evaluation when both these factors are included in the reference portfolios, and it is applied to a sample of available Spanish mutual funds. The poor performance results reflected in previous studies are not significantly modified. However, when net returns on the reference portfolios are used in the evaluation the performance is clearly improved.

Utilización y contabilidad de los instrumentos financieros derivados en los fondos de inversión españoles (Use and Accounting Treatment of Derivative Financial Instruments by Spanish Mutual Funds)

This paper identifies the basic provisions under Spanish law governing the accounting and disclosure system for mutual fund transactions in derivative financial instruments, then goes on to test their effectiveness. Most Spanish mutual funds operate in derivative products, and though the global figures may not be significant, some funds employ derivatives on a major scale. It concludes that current disclosure and accounting rules are working effectively and stand comparison with the most advanced.

Style analysis and performance evaluation of Spanish mutual funds

The aim of this paper is to evaluate the results of Spanish mutual funds. The methodology used is the analysis of the fund style. The fund style is defined as the investment percentages of different classes of assets which best explain the fund return. The portion of the return not explained by the style is a consequence of active portfolio management by timing and individual asset selection. We calculate the performance by comparing the return on the fund with that of a passively managed portfolio with the same style as that of the evaluated fund. The results show that the estimated style is consistent with the classification by portfolio composition, that the return explained by the style is greater in risky asset funds, and that most of the mutual funds do not have a performance significantly different from zero. This implies that the return obtained in active portfolio management does not differ greatly from that obtained by passive management.