Laura Andreu

Herding behaviour in strategic asset allocations: new approaches on quantitative and intertemporal imitation

In this article, we contribute to financial literature on institutional herding behaviour, intertemporal imitation and informational cascades by analysing the changes in the strategic asset allocations of Spanish equity pension plans investing in Eurozone equities. This article is mainly focused on methodological improvements. Firstly, the study examines the herding phenomenon by using the traditional measure developed by Lakonishok, Shleifer and Vishny (LSV) (1992). Afterwards, some original analyses such as the consideration of a restricted definition of buying and selling and the amount of the variations in the strategic allocations are carried out to overcome certain shortcomings existing in this metric. Moreover, we analyse the intertemporal imitation and the informational cascades through time-series regressions. The results show that Spanish pension managers are involved in herd behaviour, a phenomenon that is reinforced when important movements of the strategic allocations are required. Intertemporal analyses confirm the convergent behaviour of a significant number of pension plans; while the study of informational cascades allows us to discriminate between those plans that present anticipatory abilities and those that follow the strategic movements of the rest of the managers.

Financial consequences of mutual fund mergers

This study examines the impact of mutual fund mergers on performance and investment flows of target and acquiring funds. Results indicate some improvements in the post-merger performance for target funds shareholders. Results also confirm prior evidence of negative net asset flows in target funds in the pre-merger period as well as negative, but not significant, net asset flows in the years following the merger. However, a more detailed analysis allows us to observe that this lack of significance in the negative reaction of investors to mutual fund mergers is explained by the compensation of abnormally high inflows and outflows in the resultant funds. These substantial flows are significantly above the average in their market segment, especially regarding money flows. This finding provides evidence that investors pay attention to mutual fund mergers, especially institutional investors who are concentrated on the market possibilities resulting from these organizational processes.

Evaluating the style portfolio performance of Spanish equity pension plans

ABSTRACT This paper firstly examines the strategic asset allocations followed by Spanish equity pension plans from 2001 to 2006. Once the investment style of each portfolio is known, the second aim of the paper is to analyse the performance obtained by these portfolios along with the performance obtained by their investment style to determine the value added by each manager and the suitability of the style chosen. In this sense, the performance evaluation has been conducted by considering different performance measures used in financial Literature along with an alternative metric proposed to test the consistency of the different metrics. Finally, the study also addresses some robustness analyses to examine the consequences of imposing the portfolio constraint when non-exhaustive models are used and the effects of some well-known biases such as survivorship and look-ahead bias.

Análisis de la persistencia en rentabilidad de los FIAMM y de los determinantes de sus comisiones

RESUMEN Este trabajo analiza la persistencia de la rentabilidad, antes y después de comisiones, de los fondos de inversión españoles del mercado monetario (FIAMM), alternativa de inversión poco analizada en los mercados financieros internacionales. Dicho análisis se realiza para diferentes horizontes temporales, tanto en el corto plazo como en el largo plazo, utilizando para ello la metodología de las tablas de contingencia. Además de tablas 2×2, hemos ampliado nuestro estudio a tablas 4×4, lo que permite un análisis empírico más completo. Una exhaustiva aplicación de tests estadísticos nos permite concluir una significativa persistencia en rentabilidad neta en los análisis de corto plazo y resultados más dispares para horizontes temporales más largos. Dicho fenómeno también es observado en rentabilidades brutas aunque, generalmente, en menor medida, circunstancia que nos permite afirmar que las comisiones cobradas por los gestores de estos fondos están amplificando la persistencia de sus resultados. Este resultado justifica el análisis de las variables que influyen en las comisiones cobradas por tales fondos mediante la utilización de regresiones Tobit. Los resultados obtenidos muestran que la inversión media de los partícipes en el fondo, la edad y la rentabilidad bruta son algunas de las variables que afectan a la comisión cobrada por los FIAMM.

Performance evaluation of balanced pension plans

This paper examines the ability of balanced pension plan managers to successfully time the equity and bond market and select the appropriate assets within these markets. In order to evaluate both market timing abilities in these balanced pension plans, we extend the traditional equity market timing models to also account for bond market timing. As far as we know, we are among the first to apply this multifactor timing model to investigate equity and bond market timing simultaneously. This performance evaluation has been conducted on two samples of Spanish balanced pension plans, one with Euro Zone and one with World investment focus. This allows us to decompose managers’ skills into three components: selectivity, equity market timing, and bond market timing. Our findings suggest that the average stock-picking ability of pension plans is positive. World schemes tend to have positive bond timing skills, while Euro Zone pension plans are on average not able to time equity or bond markets.

The importance of asset allocation in Spanish equity pension plans

Following the methodological approach taken by Ibbotson and Kaplan (2000), we provide evidence of a major contribution of strategic asset allocation to Spanish equity personal pension plan performance, finding that on average more than 90 % of variability of returns over time, and about 70 % of the variation of returns among plans, are explained by strategic policy. Furthermore, we also have evidence that survivor and look-ahead bias detected in previous research have very little impact on the conclusions about the importance of asset allocation on the variability of returns over time. The importance of asset allocation to explain the variability of returns over time is quite similar for the different investment vocations considered in our study, Euro zone and global equity. Very similar results are also found when we consider the size of the Spanish plans as an explanatory factor for the contribution of asset allocation to performance. Finally, the value that active management adds to the mere passive tracking of the strategic policy is not statistically different to the management costs of the plans.

Efficiency of the strategic style of pension funds: an application of the variants of the slacks-based measure in DEA

A 2010 paper by Kaoru Tone proposes four variants of the slacks-based measure of efficiency (SBM) to overcome the limitations of this well-known Data Envelopment Analysis (DEA) approach when the reference points of the efficient frontier may not be adequate. In this study, we apply these variants for the first time to a real-world problem to evaluate the efficiency of one of the most relevant decisions in pension fund management: The strategic asset allocation. The results highlight the relevance of SBM Variation III, which considers clusters of portfolios with similar characteristics, to appropriately identify the reference set of each portfolio. Therefore, this variant allows for the identification of locally efficient but globally inefficient portfolios. Our results also reject the notion of a positive relation between management resources and efficiency of the strategic investment style.

Can Exchange Traded Funds be Used to Exploit Country and Industry Momentum

There is overwhelming empirical evidence on the existence of country and industry momentum effects. This line of research suggests that investors who buy countries and industries with relatively high past returns and sell countries and industries with relatively low past returns will earn positive risk-adjusted returns. These studies focus on country and industry indexes that cannot be traded directly by investors. This warrants the question whether country and industry momentum effects can really be exploited by investors or are illusionary in nature because they exist only on non-tradable assets. We analyze the profitability of country and industry momentum strategies using actual price data on Exchange Traded Funds (ETFs). We find that, over the sample periods that these ETFs were traded, an investor would have been able to exploit country and industry momentum strategies with an excess return of about 5% per annum. These returns cannot be explained by unconditional exposures to the Fama-French factors. The daily average bid-ask spreads on ETFs are substantially below the implied break-even transaction costs levels. Hence, we conclude that investors that are not willing or able to trade individual stocks may use ETFs to benefit from momentum effects in country and industry portfolios.

What Determines Investors’ Purchases and Redemptions?

This study examines the investment flows of Spanish domestic equity funds. Increasing research is specialized in analyzing the determinants of fund flows, but few studies have been able to investigate buying and selling behavior separately. Unique data from Spain allow us to tackle this issue by using exact information of purchases and redemptions. We find that investment flows are sensitive to past performance, though this sensitivity is more noticeable when using inflows and outflows in contrast to implied flows. Furthermore, our empirical results suggest asymmetric behavior of investors given that purchases are better explained by fund return than redemptions. In general, investors are risk averse and fee-sensitive and do not value greater size of Spanish equity funds.

Efficiency of mutual fund managers: A slacks-based manager efficiency index

This paper develops an innovative slacks-based manager efficiency index (SMEI) to evaluate the efficiency of mutual fund managers. First, the SMEI contributes to decisions by evaluating the efficiency of the manager as a whole instead of focusing on individual mutual funds. Second, the SMEI includes socio-demographic variables to extend the mere consideration of financial variables in the model. Third, the SMEI identifies locally efficient but globally inefficient managers. This local SMEI evaluates managers in reference to the ‘best practice’ competitors with similar management characteristics. Finally, this paper includes a real application of the SMEI in a sample of individual managers in the Spanish mutual fund industry. This empirical illustration further examines the persistence of the efficiency scores and the influence of the SMEI variables on the efficiency of individual managers.