The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Search results: 6.
Investment Decisions Depend on Portfolio Disclosures
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00132
David K. Musto
A weekly database of retail money fund portfolio statistics is uneconomical for retail investors to observe, so it allows direct comparison of disclosed and undisclosed portfolios. This makes possible a more direct and unambiguous test for “window dressing” than elsewhere in the literature. The analysis shows that funds allocating between government and private issues hold more in government issues around disclosures than at other times, consistent with the theory that intermediaries prefer to disclose safer portfolios. Cross‐sectional comparisons locate the most intense rebalancing in the worst recent performers.
Portfolio Disclosures and Year‐End Price Shifts
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01121.x
DAVID K. MUSTO
Commercial paper sells at an extra discount if it matures in the next calendar year but Treasury bills do not. The discount is apparent in downward price shifts before the year‐end, and upward price shifts at the turn of the year that are significantly correlated with the simultaneous returns to small stocks, and that cannot reflect tax‐loss selling. Cross‐sectional and time‐series tests on prices, as well as low of funds evidence on trades by institutional investors, indicate that both the debt and equity patterns reflect agency problems related to portfolio disclosures.
How Investors Interpret Past Fund Returns
Published: 09/11/2003 | DOI: 10.1111/1540-6261.00596
Anthony W. Lynch, David K. Musto
The literature documents a convex relation between past returns and fund flows of mutual funds. We show this to be consistent with fund incentives, because funds discard exactly those strategies which underperform. Past returns tell less about the future performance of funds which discard, so flows are less sensitive to them when they are poor. Our model predicts that strategy changes only occur after bad performance, and that bad performers who change strategy have dollar flow and future performance that are less sensitive to current performance than those that do not. Empirical tests support both predictions.
What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives
Published: 12/23/2012 | DOI: 10.1111/j.1540-6261.2012.01798.x
SUSAN E. K. CHRISTOFFERSEN, RICHARD EVANS, DAVID K. MUSTO
We ask whether mutual funds’ flows reflect the incentives of the brokers intermediating them. The incentives we address are those revealed in statutory filings: the brokers’ shares of sales loads and other revenue, and their affiliation with the fund family. We find significant effects of these payments to brokers on funds’ inflows, particularly when the brokers are not affiliated. Tracking these investments forward, we find load sharing, but not revenue sharing, to predict poor performance, consistent with the different incentives these payments impart. We identify one benefit of captive brokerage, which is the recapture of redemptions elsewhere in the family.
Leaning for the Tape: Evidence of Gaming Behavior in Equity Mutual Funds
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00438
Mark M. Carhart, Ron Kaniel, David K. Musto, Adam V. Reed
We present evidence that fund managers inflate quarter‐end portfolio prices with last‐minute purchases of stocks already held. The magnitude of price inflation ranges from 0.5 percent per year for large‐cap funds to well over 2 percent for small‐cap funds. We find that the cross section of inflation matches the cross section of incentives from the flow/performance relation, that a surge of trading in the quarter's last minutes coincides with a surge in equity prices, and that the inflation is greatest for the stocks held by funds with the most incentive to inflate, controlling for the stocks' size and performance.
Vote Trading and Information Aggregation
Published: 11/28/2007 | DOI: 10.1111/j.1540-6261.2007.01296.x
SUSAN E.K. CHRISTOFFERSEN, CHRISTOPHER C. GECZY, DAVID K. MUSTO, ADAM V. REED
The standard analysis of corporate governance assumes that shareholders vote in ratios that firms choose, such as one share‐one vote. However, if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the U.S. equity loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates the vote trade and find support in the cross section. More trading occurs for higher‐spread and worse‐performing firms, especially when voting is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals.