Luis Ferruz

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.

Performance persistence in Spanish equity funds

Past literature shows that tests of performance persistence do not agree in the most important mutual fund markets and so there is a need for further research in other smaller countries such as Spain, one of the biggest growth fund markets in Europe in the nineties. Spanish equity funds investing in domestic stocks exhibit mixed results when performance persistence is analysed. These results were obtained from an exhaustive application of parametric and non-parametric procedures proposed in the past financial literature.

Can We Beat the Market with Beta? An Intuitive Test of the CAPM

ABSTRACT Based on a strict and intuitive methodology, the article proposes an empirical test of the CAPM for the main Spanish market stocks. The idea is to replicate the behaviour of an investor purchasing undervalued shares according to the CAPM in order to beat the market during the following period. Where the investor does not meet his objective, the results are consistent with market efficiency and with the CAPM, as the stocks would quickly adapt to their rational value, according to the model. Otherwise, a strategy to beat the market would have been found, obtaining returns above those expected for a given level of systematic risk. Our results are consistent with market efficiency and with the CAPM. This conclusion is reached in different ways, indicating the robustness of the procedure.

Decisions of domestic equity fund investors: determinants and search costs

In the present study, we confirm the asymmetry of the performance-flow relationship documented in the literature, but with the particularities of the sample of Spanish funds. Thus, we conclude that mid-performers show no significant influence on investor decisions. The panel data analysis also allows us to conclude that custodial and management fees and the size of the fund have a negative impact on the flows into funds. Empirical evidence is provided on the differential response of investors to the decision factors depending on the market states.

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.

Stock-picking and style-timing abilities: a comparative analysis of conventional and socially responsible mutual funds in the US market

This paper analyses stock-picking and style-timing abilities through comparative analysis of an extensive sample of conventional and socially responsible (SR) mutual funds in the US market. Our results show that there is a little difference between conventional and SR fund managers, and even less so when we control for the presence of atypical observations. Both types of manager show negative stock-picking skills, correct size and book-to-market style-timing skills, and an absence of ability to time the market as a whole and the momentum style. Other notable findings are that the size of the fund does not affect the style-timing abilities of both conventional and SR mutual fund managers. In terms of the age of the fund, we observe that the results obtained for conventional funds are driven by older funds, while younger funds, both conventional and SR mutual funds, show perverse market-timing skills. Finally, we observe that both conventional and SR mutual fund managers make use of superior information to time the book-to-market style.

Do pension funds managers display stock-picking and market timing ability? Evidence from the United Kingdom and Spain

ABSTRACT This paper examines the stock-picking and market timing abilities of pension funds managers in the UK and Spanish markets, analysing their use of privileged information to implement management strategies and considering the possible effects of portfolio size. We take the analysis further by correcting benchmark omission bias. Our results reveal some degree of stock-picking ability, but perverse market timing ability, as well as incorrect use of privileged information in timing strategies. These findings are consistent with the portfolio size effect, although they are influenced by benchmark omission bias. The results obtained are very similar for both UK and Spanish pensions funds managers.

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.

EU ETS CO 2 emissions constraints and business performance: a quantile regression approach

The European Union Emissions Trading Scheme (EU ETS) is the first and largest international scheme for the trading of greenhouse gas emission allowances (European Union Allowances (EUA)). Considering that the global economic crisis is hurting corporate profits, analysing the implications of CO2 emissions constraints for company business performance (BP) is a crucial task for both policymakers and companies. In this context, we analyse the relationship between surplus of allowances (SA) and BP in Spanish firms during the period 2005 to 2010. Using quantile regression techniques that provide a more complete picture of the relationship between the analysed variables, we draw two conclusions. First, an increase in company activity effectiveness led to a decrease in SA, indicating that activity effectiveness was not linked to good environmental performance, in terms of wasting the minimum number of allowances. Second, a decrease in SA, i.e., buying more or selling less EUAs is linked to an increase in company profitability. This provides evidence that the price of EUA was not sufficiently high to create a cost advantage for firms reducing their emissions. Based on our results, two policy measures are proposed.

Performance of Spanish pension funds: robust evidence from alternative models

This article investigates the performance of Spanish pension funds using a range of linear and nonlinear performance models. As the sample presents characteristics of higher-order moments, traditional performance measures are distorted. We generate alternative performance models which include higher-order risk factors that model skewness and kurtosis; factors that capture nonlinearity inherent in some of the underlying assets used in pension funds. The results suggest that Spanish pension funds exhibit positive market timing and selectivity ability. Moreover, this positive performance is robust to the model used to adjust performance for risk, including the higher-order risk factors. The stronger performing pension funds have a higher exposure to size and book-to-market risk. Also, small-sized funds and funds with less volatility exhibit stronger performance.