Finance - Theses
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ItemEssays on Mutual Funds( 2023-09)In this dissertation, I look into two significant questions within the broader scope of mutual funds. Firstly, I examine the external effects of a substantial increase in mutual fund ownership in public companies. Secondly, I investigate the comparative abilities of mutual fund managers. These investigations are conducted through two separate essays, Chapter 3 and Chapter 4, where empirical studies are undertaken within the context of U.S. index funds and Chinese fixed income funds, respectively. Chapter 3 focuses on addressing the following research questions: Does the inclusion in index fund portfolios have a positive impact on information disclosure of public firms? Additionally, does securities lending enhance or offset this impact? In Chapter 4, in collaboration with my co-author, I endeavour to explore the following research questions: Do managers with a background in credit rating outperform their non-analyst counterparts in the management of fixed income mutual funds? If so, is this outperformance attributed to superior credit rating-specific skills or the acquisition of superior information through networks? The first essay, presented in Chapter 3, looks into the impact of both investment and lending activities of index funds on information disclosure of public firms. The study focuses on a sample of U.S. firms spanning from 2002 to 2017. Notably, the research reveals contrasting effects: securities lending is found to have a detrimental impact on the information environment of public firms, while index fund holdings are associated with improved information transparency and a decrease in the withholding of negative news by company managers. These findings remain robust across various tests and are particularly pronounced when examining a smaller sample utilizing the Russell 1000/2000 index reconstitution as a source of exogenous variation in index fund holdings. Additionally, the study uncovers a negative relationship between index ownership and abnormal trading activities during weeks of stock price crashes. These results support the notion that despite their prevalent securities lending and passive investing strategies, index funds have an overall positive influence on the information environment of public firms. The second essay, presented in Chapter 4, aims to examine whether bond fund managers who possess credit rating experience outperform their counterparts. The study provides evidence that, on average, bond fund managers with prior employment in credit rating agencies generate higher risk-adjusted returns than their peers. Specifically, their performance surpasses that of their counterparts by 11-16 basis points per month, indicating superior security selection and market timing abilities. Moreover, the study confirms that this outperformance stems from their industry-specific knowledge acquired through credit rating experience (specialization), rather than any informational advantage derived from their previous colleagues (network). Additionally, the study reveals net inflows to funds managed by these managers, suggesting that investors are aware of the skills possessed by analyst managers.