The Journal of Finance

What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide

Published: 05/03/2005   |   DOI: 10.1111/j.1540-6261.2005.768_1.x

KALOK CHAN, VICENTIU COVRIG, LILIAN NG

We examine how mutual funds from 26 developed and developing countries allocate their investment between domestic and foreign equity markets and what factors determine their asset allocations worldwide. We find robust evidence that these funds, in aggregate, allocate a disproportionately larger fraction of investment to domestic stocks. Results indicate that the stock market development and familiarity variables have significant, but asymmetric, effects on the domestic bias (domestic investors overweighting the local markets) and foreign bias (foreign investors under or overweighting the overseas markets), and that economic development, capital controls, and withholding tax variables have significant effects only on the foreign bias.

Non‐Fundamental Speculation

Published: 06/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb02694.x

VICENTE MADRIGAL

We study an intertemporal asset market where insiders coexist with “non‐fundamental” speculators. Non‐fundamental speculators possess no private information on fundamental values of assets, but have superior knowledge about some aspect of the market environment. We show that the entry of these (rational) speculators can lead to reductions in market liquidity and in the information content of prices, even in an efficient market. Also, equilibrium trades display patterns of empirical interest. For example, speculators appear to chase trends and lose money after market “overreactions,” while insiders trade as contrarians and profit after such overreactions.

The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value

Published: 09/12/2012   |   DOI: 10.1111/j.1540-6261.2012.01776.x

VICENTE CUÑAT, MIREIA GINE, MARIA GUADALUPE

This paper investigates whether improvements in the firm's internal corporate governance create value for shareholders. We analyze the market reaction to governance proposals that pass or fail by a small margin of votes in annual meetings. This provides a clean causal estimate that deals with the endogeneity of internal governance rules. We find that passing a proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8%. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism for proposals sponsored by institutions. In addition, we find that acquisitions and capital expenditures decline and long‐term performance improves.

Price and Probability: Decomposing the Takeover Effects of Anti‐Takeover Provisions

Published: 04/22/2020   |   DOI: 10.1111/jofi.12908

VICENTE CUÑAT, MIREIA GINÉ, MARIA GUADALUPE

We study the effects of anti‐takeover provisions (ATPs) on the takeover probability, the takeover premium, and target selection. Voting to remove an ATP increases both the takeover probability and the takeover premium, that is, there is no evidence of a trade‐off between premiums and takeover probabilities. We provide causal estimates based on shareholder proposals to remove ATPs and address the endogenous selection of targets through bounding techniques. The positive premium effect in less protected firms is driven by better bidder‐target matching and merger synergies.

Picking Winners? Investment Consultants’ Recommendations of Fund Managers

Published: 05/05/2015   |   DOI: 10.1111/jofi.12289

TIM JENKINSON, HOWARD JONES, JOSE VICENTE MARTINEZ

Investment consultants advise institutional investors on their choice of fund manager. Focusing on U.S. actively managed equity funds, we analyze the factors that drive consultants’ recommendations, what impact these recommendations have on flows, and how well the recommended funds perform. We find that investment consultants’ recommendations of funds are driven largely by soft factors, rather than the funds’ past performance, and that their recommendations have a significant effect on fund flows. However, we find no evidence that these recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless.