Essays on institutional investors' behaviour and performance

© 2013 Dr. Jiaguo (George) WangChapter 1: On Market States and the Value of the Actively Managed Mutual Fund Industry This paper presents a novel approach to quantify the economic value of mutual funds’ conditional performance in bear market states. In particularly, this approach jointly evaluates fund managers’ market timing and selectivity skills across market states. After accounting for the insurance premium of managers’ conditional performance in bear states, this study finds that the extra benefit arising from active mutual fund management in bad times could largely compensate for its cost at the aggregate level. Chapter 2: Mutual Fund Performance, Momentum Trading and January Seasonality This paper demonstrates that the actively managed U.S. equity mutual fund does not underperform the CAPM, Fama–French three-factor, and Carhart four-factor benchmarks during 11 months of the year. In contrast, mutual funds considerably underperform the passive benchmarks in January. We find that the January underperformance is due largely to mutual fund managers chasing momentum trends, which experiences a dramatic reversal in January. Since fund managers disproportionally overweight medium-cap winners at the end of the year, the subsequent reversal of these past winners significantly drags down the average returns of mutual funds in January