CONTENTS 14
Preface 6
I. Estimating Tax Rates and Ex-Dividend Behavior 6
II. Factors Affecting Corporate Bond Prices 7
III. Performance Measurement of Mutual Funds 8
IV. Mutual Fund Behavior 9
V. Special Issues with Mutual Funds 10
VI. Return-Generating Processes 11
VII. Pension Funds 11
VIII. Optimum Portfolio Construction 12
Acknowledgements 18
I. Estimating Tax Rates and Ex-Dividend Behavior 22
1. \ 24
Reasons for the Study 24
The Relationship between Ex-dividend Behavior and Stockholder Tax Rates 25
Clientele Effect 27
Summary 29
2. \ 32
I. Introduction 32
II. Review of the Literature 33
III. Methodology 33
IV. Sample 34
V. Hypotheses 35
VI. Results 35
Vll. Implied Tax Rates and Clientele Effects 37
VII. Conclusion 38
REFERENCES 38
II. Factors Affecting Corporate Bond Pricing 40
3. \ 42
ABSTRACT 42
I. Corporate Yield Spreads 45
A. Data 45
B. Measuring Spreads 46
C. Empirical Spreads 47
D. Fit Error 49
II. Estimating the Default Premium 52
III. Estimating The State Tax Premiums 58
IV. Risk Premiums For Systematic Risk 62
V. Conclusion 67
Appendix A. Determining Yield to Maturity on Zeros (Spot Rates) 68
Appendix B. Measuring the Default Premium in a Risk-Neutral World Without State Taxes 69
Appendix C. Estimating the Impact of State Taxes 71
REFERENCES 71
4. \ 74
Abstract 74
1. Introduction 75
2. Alternative models 75
3. Analysis based on rating class 76
3.1. Data 77
3.2. Extracting spot rates 77
4. Other factors that affect risk 79
4.1. Differential default risks 81
4.2. Different liquidity 83
4.3. Different tax treatment 84
4.4. Different recovery rates 85
4.5. Bond age 86
5. Adjusting for differences 87
6. Conclusion 92
References 93
III. Performance Measurement of Mutual Funds 96
5. \ 98
1. The Effect of Non-S&P Assets on Mutual Fund a's 101
1.1 Non-S&P stocks 101
1.2 Bonds 103
2. Adjusting for Other Indexes 105
3. Market Efficiency Turnover and Expenses 113
4. Conclusion 117
References 118
6. \ 120
ABSTRACT 120
I. Omission Bias and Survivorship Bias 121
II. Upward-biased Monthly Returns in the CRSP Mutual Funds Database 125
III. Merge Data 128
IV. Consistency of CRSP and Morningstar Data 131
V. Conclusion 134
REFERENCES 134
IV. Mutual Fund Behavior 136
7. \ 138
ABSTRACT 138
I. Industry Perspective 139
II. Average Performance 140
III. Index Funds 144
IV. Closed End Mutual Funds 146
V. The Persistence of Performance 148
VI. Expenses 151
VII. Predicting Cash Flows 152
VllI. Return on New Investment 156
IX. Summary and Conclusion 161
Appendix A 163
REFERENCES 164
8. \ 166
ABSTRACT 166
I. Data 167
II. Characteristics of Index Funds and Their Predictability 168
A. Predictability of Average Index Fund Return 168
A.i. Size and Dispersion of Return Variables 169
A.2. Association of Return with Past Variables 170
A.3. Prediction of Return 172
B. Predictability of Management Skill 178
C. Predictability of Risk 180
D. Predictability of Tax Efficiency 180
E. Other Considerations 181
III. Cash Flows and Fund Characteristics 181
IV. How Well Do Investors Do? 186
V. Conclusion 190
REFERENCES 191
9. \ 194
Abstract 194
I. Introduction 194
II. The Data 197
III. Correlation within and between Fund Families 198
IV. The Significance of Correlation Differences within and between Fund Families 201
A. Return Differences 201
B. Risk Differences 203
C. Implications for 401 k Plans 204
V. What Explains the Higher Correlation? 204
A. Two-Index Model-Sensitivity to Bonds and Stocks 205
B. Multi-Index Models 206
VI. Common Holdings 207
A. Difference in Common Holdings 207
B. Impact of Common Holdings on Correlation 209
VII. Differences in Variance across Fund Families 210
VIII. Conclusion 211
Appendix. Extra Return to Maintain the Same Sharpe Ratio When Adding a Stock or Combination Fund 212
References 213
10. \ 216
1. Introduction 216
2. Sample 217
3. Missing trades and turnover 218
4. Momentum 219
5. Tax-motivated trades 221
6. Window dressing 222
7. Tournament model and mutual fund behavior 223
7.1. Change in asser properties 224
7.2. Challge ill the risk of the stock portfolio 224
8. Conclusions 225
References 226
V. Special Types of Funds 228
11. \ 230
ABSTRACT 230
I. The Use of Incentive Fees by Mutual Funds 231
II. Implications of Financial Theory for Management Behavior 233
III. Data 236
IV. Empirical Results 237
A. Incentive Fees 237
B. Return Performance 239
Bl. Security Selection Ability 239
B2. Non-Benchmark Effects 243
C. Risk 245
Cl. Risk over Time 245
C2. Changing Risk 248
D. Attracting New Flows 250
V. Conclusion 253
REFERENCES 254
12. \ 256
I. Introduction 256
II. Performance of Spiders 258
A. Overall Return on Spiders 259
B. Deviations of Price from NA V 264
C. Comparison with Altemative Vehicles 266
III. CreationIDeletion 269
IV. Determinants of Volume 271
V. Conclusion 273
References 274
VI. Return Generating Process 276
13. \ 278
I. An Overview 279
II. The Data 281
A. Price Data 281
B. Survey and Announcement Data 282
III. Getting Expected Return 282
IV. Tests in the Bond Area 284
A. A Constant Risk Premium 284
B. Forward Rates and Risk Premiums 285
C. Factor Analysis 286
D. Changing Risk Premiums 289
V. Asset Pricing Tests in the Common Stock Area 292
A. Information Surprises and Tests of a Particular Asset Pricing Model 293
B. Number of Priced Factors 296
C. Implications 297
VI. Summary 297
REFERENCES 298
14. \ 300
1. Sample 302
2. Analysis 303
2.1. THE BASE MODEL 304
2.2. A FIFTH INDEX 307
2.3. ESTIMATING THE EFFECT OF COMMON HOLDINGS 311
2.4. IS IT COMMON HOLDINGS OR A SYSTEMATIC FACTOR? 315
2.5. IS THE ADDITION OF MGO ENOUGH? 318
3. Test on Passive Portfolios 319
4. Conclusion 322
Acknowledgements 323
References 323
VII. Pension Funds 326
15. \ 328
Abstract 328
1. Data 330
2. Adequacy of investment choices 332
2.1. Methodology 332
2.2. Results 333
3. Characteristics of the specific mutual funds selected 335
3.1 . The risk-adjusted peiformance of plan fimds 335
3.2. Risk characteristics 338
4. Company stock 339
5. Plan characteristics 339
6. Conclusion 341
Acknowledgements 342
References 342
16. \ 344
Abstract 344
1. Introduction 344
2. Data 346
3. Performance 347
3.1. Fund performance 347
3.2. Performance of additions and deletions 353
3.3. IdentificlIlion of superior plan administrators 356
4. Aggregate participant behavior 357
4.1. Importance offund retums, participant contributions and transfers in changing investment proportions 358
4.2. Participants' reaction to return in the aggregate 360
4.3. Allocation to new investment choices 361
4.4. How well do participants do in allocating assets? 362
5. Conclusions 364
Acknowledgments 365
References 365
VIII. Optimum Portfolio Construction 368
17. \ 370
I. THE SINGLE INDEX MODEL AND THE CONSTRUCTION OF OPTIMAL PORTFOLIOS 371
1. Optimum Portfolios with Short Selling 372
2. Optimal Portfolios When Short Sales Are Not Allowed 376
II CONST ANT CORRELATION COEFFICIENTS AND THE CONSTRUCTION or OPTIMAL PORTFOLIOS 379
A. Optimal Policies When Short Sales Are Allowed 380
B. Optimal Policies When Short Sales Are Not Allowed 381
III. CONCLUSION 384
APPENDIX A 384
APPENDIX B 384
APPENDIX C 385
REFERENCES 385
18. \ 388
Abstract 388
I. Introduction 388
II. Background 389
III. Separation with a Single Active and Multiple Passive Managers 391
A. The COM's Problem 391
B. Optimum Active Portfolio 393
C. Solving the Aggregate Allocation Problem 394
D. The Aggregate Portfolio Problem with Futures 395
IV. Multiple Active Managers 396
V. Orthogonal Indexes 398
VI. Short Sales Not Allowed 399
VII. Conclusion 400
References 401
19. \ 402
Abstract 402
I. Introduction 402
II. Modern Portfolio Theory 403
III. A Proposed Rationality Test 405
A. Short Sales Allowed 405
B. Short Sales Not Allowed 408
IV. Consistency with Specific Recommendations 408
V. Conclusion 414
Appendix 415
References 416