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    Three essays on style drift in mutual funds : a dissertation presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, School of Economics and Finance, Albany Campus, New Zealand
    (Massey University, 2022) Malik, Anum
    This thesis seeks to enhance our collective understanding of style drift in mutual funds. The first essay of this thesis provides a critical review of the current literature on the topic of style drift and presents newer ways of viewing the concept. In particular, it provides a detailed analysis of the U.S. mutual funds industry and proposes a conceptual framework to present a fuller picture of the phenomenon. This framework introduces the concept of style enhancement and presents a newer way of viewing style drift. The proposed framework offers insights beyond the traditional notion that classifies all types of deviations under one broad phenomenon of “style drift.” This thesis then, in Essay Two, attempts to identify a threshold level of deviation beyond which a fund is likely to be classified as misclassified. This essay provides practical implications to investors as it helps them in identifying when their portfolio is likely to move toward a point beyond which they should be watchful about the investment activities carried out by their fund managers. The deviations beyond this threshold level may expose them to risk adversely affecting their investment portfolio. The final essay of this thesis, Essay Three, investigates the relationship between the frequency of mutual fund holdings disclosure and style drift. This essay uses a difference-in-difference test to examine the impact of disclosure frequency on the style drift of mutual funds. The evidence suggests that style drift decreases with an increase in disclosure frequency and vice versa. The essay provides implications for the standard setting authorities, such as the Securities and Exchange Commission, to consider the impact of disclosure frequency on the style drift of mutual funds when determining optimal disclosure frequency. Keywords: Mutual Funds, Investment Style, Style Drift, Style Enhancement, Style Misclassification, Risk-Shifting Behavior, Style Misclassification, Investment Style, Performance, Tracking Error Mutual Funds; Portfolio Holdings Disclosure; Portfolio Disclosure Frequency, Style Drift, SEC Regulation, Difference-In-Difference Test
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    Does air quality matter for mutual funds' tracking errors? : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Finance at Massey University, Auckland, New Zealand
    (Massey University, 2019) Roy, Suvra
    Social science literature documents that air quality affects the cognitive dissonance of market participants including retail investors. In this paper, we examine the effect of air pollution on professional investors: mutual fund managers. We find air pollution affects managers’ cognitive performance and behaviour bias, resulting in higher funds’ tracking errors. In addition, we identify factors, which can improve fund managers’ cognitive abilities, reducing the impact of air pollution.
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    Essays on institutional investors' trading behaviours : a dissertation submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, School of Economics and Finance, Massey University
    (Massey University, 2018) Tang, Tiantian
    This research is the first comprehensive academic endeavour to explore the trading behaviours for both domestic and foreign institutional investors in China, the world largest emerging market, using a unique data set. In 2003, Chinese regulatory authorities established a scheme named Qualified Foreign Institutional Investors (QFIIs), which allows foreign institutional investors to directly trade in “A” shares. Before then, no foreign investors were allowed to do so. According to numerous media reports and anecdotes, QFIIs in China have been much more successful than their Chinese counterparts. These have aroused a great deal of curiosity among academics and practitioners. Thus, it is of great interest to examine the trading activities engaged by both domestic and foreign institutional investors in China. This research embraces three subprojects for three essays respectively. The first essay investigates the preferences and stock characteristics of domestic and foreign institutional holdings in China. The results indicate that they have similar preferences regarding certain stock characteristics, but different preferences when it comes to industry allocations. The results also highlight the differences regarding corporate governance and stock picking patterns. The panel regression suggests that firms with institutional holdings in the previous period perform better in the following period. This phenomenon is stronger for domestic holdings, indicating that domestic institutional investors have an edge in stock picking over foreign institutional investors. This study also finds that ownership concentration plays a positive role in firm performance. The second essay conducts a comprehensive performance evaluation of Chinese mutual funds and style investment. Using a characteristic-based benchmark, results indicate that mutual fund managers have stock picking talents over time, with relative weak ability to time the market. Style investments contribute the most to funds’ gross returns. Active funds exhibit lower style consistency but still realise better net returns compared to their passive counterparts. This essay further suggests that mutual fund managers who concentrate their holdings in certain industries perform better after controlling for common risk factors. The second essay also concludes that Chinese mutual fund managers have the ability to select superior industries. The third essay examines the fund performance by sorting the equity holdings into deciles based on the style consistency and industry concentration. Results suggest that fund managers with consistent investment styles and concentrated industry holdings outperform the others. This positive style-performance relation remains statistically significant after controlling for various fund characteristics. Small funds and growth funds exhibit stronger style effects. Funds investing more in state-owned stocks have inferior returns. The stocks purchased by fund managers perform better than the stocks sold. Similar results are observed for stocks held by the foreign institutional investors (QFIIs). This thesis contributes to the existing literature by examining the trading behaviour of both the domestic institutional and the foreign institutional investors in China. It sheds extra light on issues related to the Qualified Foreign Institutional Investors scheme, which has contributed largely to the reform of the Chinese financial market since 2003. The analysis of the investment styles of institutional investors has important implications for academics, practitioners and, in particular, policy makers, and enables China to further enhance its financial market liberalisation with the rest of the world.
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    An examination of the relationship between mutual funds' holdings and listed firms in China : a thesis presented in partial fulfilment of the requirements for the degree of PhD in Finance at Massey University, Palmeston North, New Zealand
    (Massey University, 2012) Yang, Jingjing
    This thesis comprises three essays that focus on the relationship between mutual funds and listed firms in China. In contrast to existing studies, which regard mutual funds as being homogeneous, Essay One classifies mutual funds into three categories based on their past investment behaviours: dedicated, quasi-index and transient mutual funds. Different mutual fund types are then used throughout the whole thesis. Moreover, Essay One also finds that different mutual funds have different criteria of selecting portfolio firms and adopt different trading strategies. In the following two essays, dedicated and quasi-index mutual funds are grouped together as long-term mutual funds, as both of them have longer holding periods than transient mutual funds. Transient mutual funds are treated as short-term mutual funds . Essay Two examines the impact of mutual funds on earnings management. The empirical evidence indicates that long-term mutual funds can constrain non-core income management. However, they are incapable of influencing accruals management. Transient mutual funds, which pursue short-term earnings, can encourage listed firms to manage earnings in a subtle way: decreasing non-core income, but increasing discretionary accruals. Essay Three investigates the relationship between mutual funds and dividend payouts. Essay Three finds that all mutual funds types prefer to invest in listed firms that pay cash or stock dividends. Listed firms tend to pay more cash dividends after the long-term mutual funds’ ownership increases. Due to the concern of the deterioration of financial ratios and the liquidity of stocks, long-term mutual funds do not encourage their portfolio firms to pay more stock dividends. On the other hand, listed firms increase both cash and stock dividend payout rates after transient mutual funds’ ownership increases. Overall, the empirical evidence indicates that different mutual fund types show different preferences for firm attributes and exert different impact on their portfolio firms. The heterogeneity among Chinese mutual funds investigated in this thesis has not previously been rigorously investigated and this makes the findings of this thesis important and unique for the benefit of both academic research and practical application.
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    Does mutual fund investment style consistency affect the performance of mutual funds? : evidence from Chinese mutual funds
    (Massey University, 2009) Zhao, Yi
    While much of the previous research on mutual funds has concentrated on finding the relationship between the investment style, the past performance and the future performance of funds, very few of the studies have paid attention to the effect of a mutual fund manager’s execution of investment style on fund returns. Using return-based analysis methodologies for measuring the style consistency of Chinese mutual funds, this thesis demonstrates that the less style-consistent funds tend to produce higher future risk-adjusted returns than more consistent mutual funds, even after controlling for past performance and net asset value (NAV). Further, these findings are robust across mutual fund investment style classifications, test period intervals (one-year or one-quarter interval), and the model used to calculate the expected returns (four-factor model and Sharpe’s style analysis model). This thesis also documents the performance-persistency effects that exist in Chinese mutual funds, which remain persistent even under the condition of style consistency. More importantly, the research discovered that at a time of change in the Chinese stock market, the negative correlation between style consistency and future performance becomes weaker. The study concludes that style consistency does matter for mutual funds’ future risk-adjusted returns and that there is a significant negative correlation with mutual funds’ future risk-adjusted performance in the longer term (i.e., over the entire test period). Moreover, this connection is distinct from those related to the past risk-adjusted performance and NAV of mutual funds. It is also clear that a significant negative correlation between style consistency and the future risk-adjusted return does exist in Chinese stock and asset allocation mutual funds, even after adjusting for the investment style of the fund. Finally, this thesis provide a mutual funds picking strategy for investors base on the main findings of this study, which can provide significant positive alpha at each year during the test period.