Tariq H. Haque

Can Australian Mutual Fund Fees Be Justified by Their Unconditional Performance or by Their Performance in Economic Recessions

I find that the performance of Australian mutual funds in recessions and non-recessions, that is the performance of the funds conditional on the state of the economy, is an important determinant of the fees that they charge. The unconditional performance is a weighted average of the conditional performance of a fund over recessionary and non-recessionary periods and is only significantly related to fees charged for two categories, namely large-cap blend and mid/small-cap blend funds. For the other four categories studied: large-cap growth, large-cap value, mid/small-cap growth and mid/small-cap value, the gross unconditional alpha does not influence mutual fund fees. I find that large-cap blend managers have skill in generating gross alphas in both recessions and non-recessions and therefore unconditionally also. Large-cap growth managers have skill in generating gross alphas in recessions but not in non-recessions. Many large-cap value managers have skill in generating gross alphas in recessions and many in non-recessions but not many do well in both recessions and non-recessions leading to an insignificant effect of unconditional alphas on fund fees for this segment of funds. Mid/small-cap blend managers have skill in generating gross alphas in non-recessions while mid/small-cap growth managers have skill in generating gross alphas in recessions. There is little evidence for managerial skill in generating gross alphas in either recessions or non-recessions for mid/small-cap value managers.

The Impact of Capital Buffers on Future Loan Growth, Interest Income and Tier 1 Capital Ratios

The literature on banking supervision largely focuses on maintenance of capital adequacy. Many banks, however, appear to have much higher capital ratios than the minimum required (Ayuso et al., 2004; Jokipii and Milne, 2008; Shim, 2013). In this paper, we show that bank capital buffers (actual capital minus the minimum required) are positively associated with future loan growth, future interest income and the future Tier 1 capital ratio. We, however, find that banks with low capital buffers experience a reduction in their future Tier 1 Capital ratio while banks with high capital buffers experience increased future loan growth and an increase in the future Tier 1 Capital Ratio. We, therefore, extend Foos et al. (2010) who show that loan growth leads to increased loan loss provisions and lower capital ratios by allowing for the level of capital buffer.

Dimensions and Measurement of Living Standards: Commentary

Last couple of decades, there has been a remarkable surge of interest in measuring the progress of societies. Much of this concern has related to growing inequality in the distribution of money income, but it has also emphasised that many other factors influence economic welfare. Growth in income does not always advance human welfare. For example, if it involves reduced leisure, social amenity or imposition on family life and so on, and some non-income changes can make people much better off. The upshot at the level of theory is an important literature about the quality of life

Do Equity Mutual Funds Really Perform Less Poorly in Bad Times? Evidence from US and Australia

We find that in Australia, Mid/Small-cap funds often have significantly positive net alphas and this is driven by their strong performance in down-markets. In contrast Large-cap funds often have significantly negative net alphas and this is driven by their relatively poor performance in up-markets which cannot be offset by their performance in down-markets. We also find that Australian Large-cap funds generally reduce their market betas in down-markets while Australian Mid/Small-cap funds generally increase their market betas in down-markets. In the US, funds in all categories generally perform strongly in up-markets but perform poorly in down-markets which leads to negative unconditional alphas being observed. We also find that many US mutual funds increase their beta in down-markets which contributes to their poor performance in down-markets. In the US, funds also tend to perform relatively strongly in non-recessions but poorly in recessions. Despite the fact that these funds reduce their market betas in recessions they still do not achieve positive alphas in those periods.

Switching between the Banking and Metals and Mining Sectors of Australia

Using the Australian banking and metals and mining industries as the categories in the Barberis and Shleifer model, this study demonstrates switching in the Australian stock market. Switching occurs when investors move into an industry by selling off stocks of an alternate industry, thus causing negative lagged cross-correlation between those industries. Our results, based on daily returns, suggest that category-level investor sentiment may drive observed switching patterns in the Australian stock market and not fundamental risk factors. Our results also show that switching does not necessarily only occur between value and growth stocks or large-cap and small-cap stocks.