Ajay Samant

Risk-adjusted performance of international mutual funds

Purpose - This paper aims to evaluate the risk-adjusted performance of US-based international equity funds using objective statistical measures grounded in modern portfolio theory, and to present the results in a manner which is easily understood by the average investor. Design/methodology/approach - This study evaluates the performance of 50 large US-based international equity funds using risk-adjusted returns during 1994-2003. In particular, a relatively new risk-adjusted performance measure ( Findings - The empirical results show that the funds with the highest average returns may lose their attractiveness to investors once the degree of risk embedded in the fund has been factored into the analysis. Conversely, some funds, whose average (unadjusted) returns do not stand out, may look very attractive once their low risk is factored into their performance. Research limitations/implications - It may be worthwhile to examine the effects of factors such as fund manager compensation, service fees, corporate governance metrics, and overweighting in risky countries/regions on the performance of international equity funds. Practical implications - The evidence presented in this study can be used as input in decision making by investors who are exploring the possibility of participating in the global stock market via international equity funds. Originality/value - This paper is one of the first studies that apply the new

An empirical study of interest rate swap usage by nonfinancial corporate business

This study examines the relationship between the probability and extent of a firms participation in interestrate swap markets and the magnitude of some of its operating and financial ratios. These ratios are selected to proxy incentives to reduce agency costs of leverage and information asymmetry in credit markets. The data on swap usage are obtained from disclosures mandated by SFAS 105. The results suggest that fixed-rate payers, compared to non-swap-users, have more leverage, greater profitability, more growth options, less operating risk, lower ratios of fixed to total assets, and more divergent earnings estimates. On the other hand, floating-rate payers do not seem to have financial and operating characteristics significantly different from non-swap-users, although they do have less divergent earnings estimates.

Investing with a Conscience: An Evaluation of the Risk-Adjusted Performance of Socially Responsible Mutual Funds

This study evaluates risk‐adjusted performance of socially responsible mutual funds during the period 1991‐2000, using objective statistical measures grounded in modern portfolio theory. A socially responsible mutual fund is defined as one which employs “social screens” in stock selection, such as whether a fi rm manufactures tobacco products, whether it is in the gambling business, whether it heeds environmental safety, its human rights records, etc. The main objective of this study is to provide empirical documentation on the risk‐adjusted returns of these mutual funds, for the benefit of investors. To our knowledge, this is one of the first, if not the first, academic study to utilize a relatively new risk‐adjusted performance measure, posited by Nobel Laureate Franco Modigliani and Leah Modigliani in 1997 (hereafter referred to as M Squared), to evaluate socially responsible mutual funds. The idea that underlies their methodology is to adjust the investment risk of a mutual fund to the level of risk in an unmanaged benchmark stock‐market index and then measure the returns on the risk‐matched fund. The M Squared measure not only relates the level of risk to the level of reward, but also enables risk‐adjusted returns to be reported on a percentage basis, rather than on an absolute basis, which makes them more easily understood by the average investor. The results of this study can be used in decision making by investors who seek objective criteria to select a socially responsible mutual fund from among a menu of several funds.

Evaluating large US‐based equity mutual funds using risk‐adjusted performance measures

Purpose – This paper seeks to evaluate the risk‐adjusted performance of the largest US‐based equity mutual funds using rigorous analysis grounded in modern portfolio theory and present the results in a manner which is comprehensible to a lay investor.Design/methodology/approach – This study evaluates the performance of the 20 largest US‐based mutual funds using risk‐adjusted returns during 1995‐2004. In particular, a relatively new risk‐adjusted performance measure by Modigliani and Modigliani is used to evaluate these equity funds. This study also utilizes a variation of the Sortino Ratio to account for downside risk.Findings – The results show that the funds with the highest returns may lose their attractiveness once the degree of risk had been factored into the analysis. Conversely, some funds may look very attractive once their low risk is factored into their performance.Research limitations/implications – Future researchers may want to investigate the effects of factors, such as fund manager, compens...

Depositary receipts from the East Asian region

Notes rapid growth in the number of depositary receipt (DR) listings on US exchanges and presents a study of those from East Asia. Explains how they allow US investors to trade in the equity or debt of non‐US companies through US institutions and reviews the relevant literature. Classifies 605 East Asian DRs at March 2000 by country, year of issue, sponsorship status, exchange, depositary bank and industry; and discusses reasons for the differences found. Tests the relationship between exchange rates and the issuance of DRs and presents the results, which show that firms may be more likely to issue DRs when their home currency is strong relative to the US dollar, i.e. when they can obtain the best listing price in US markets.

American depositary receipts (ADRs) from Latin-America: an opportunity for American investors

American Depositary Receipts (ADRs), based on stocks of firms registered in Latin-America, are rapidly gaining popularity among investors in the U.S. ADRs serve a dual purpose. First, they enable Latin firms to raise capital in the US without having to meet cumbersome security listing requirements. Second, they enable US investors to benefit from possible high returns in Latin-American securities without the inconvenience of having to deal with foreign currencies or the inconvenience of buying and selling in foreign stock markets. In academic literature, there has never been a thorough examination of the nature of ADRs issued by Latin-American firms. This study presents an overview of the patterns and trends of ADR utilization within the Latin-American region: by country; by industry; by security exchange; and, by “sponsorship”, the role played by the issuing company.

Signaling Effects of Junk Bond Issuance: Has the Interest Rate Swap Age Made a Difference?

Signaling theory predicts that the stock price reaction to issuance of fixed-rate, non-investment-grade debt would be more unfavorable in an age when interest rate swaps are readily available than in the pre-swap age. This prediction is based on the fact that swaps can be used to hedge long-term against interest rate risk. The issuance of fixed-rate, long-term debt (particularly non-investment-grade) in the swap age may be motivated, therefore, by some other considerations, possibly the firms expectation of a deterioration in its credit rating. The prediction is tested by estimating Cumulative Average Abnormal Returns (CAARs) for the common stock of firms which issued non- investment-grade debt before and during the swap age. A paired-Z test of CAAR differences supports the conjecture. These results suggest a course of action for financial managers who need to raise debt funds but do not want either to issue short-term debt and face future interest rate risk or to issue long-term debt and lock in an obligation to pay high interest rates over the entire maturity period because of their currently low credit rating. Rather, they should follow an integrated borrowing strategy of issuing short-term debt and swapping into fixed interest rate payments.