Aigbe Akhigbe, Jeff Madura and Alan Tucker Volume 3, Number 2, Second Quarter 2005 This study investigates the motives for open-ending closed-end funds, and performance of closed-end funds following open-ending announcements. We find that the propensity to open end is higher for funds that are larger, have high expense ratios, exhibit high volatility, and whose… Read more
Articles
The Kiss Of Death: A 5-Star Morningstar Mutual Fund Rating?
Matthew R. Morey Volume 3, Number 2, Second Quarter 2005 We examine the effect that an initial 5-star Morningstar mutual fund rating has on future fund performance, strategy, risk-taking, expenses, and portfolio turnover. Using a sample of diversified domestic equity funds from the 1990s we find that during the 3 years after a fund received… Read more
How New Entry in Options Markets Affected Market Making and Trading Costs
Patrick de Fontnouvelle, Raymond P. H. Fishe and Jeffrey H. Harris Volume 3, Number 2, Second Quarter 2005 A significant competition for order flow in options markets occurred in August 1999. Before the competition, the majority of option volume arose from exclusive listings. By the end of September 1999, entry by existing option exchanges had… Read more
Developing Better Fee Structures for Mutual Funds
Ronald T. Wilcox Volume 3, Number 2, Second Quarter 2005 This paper presents a management decision model for setting mutual fund fees. The model pairs information obtained from a conjoint analysis, designed to uncover investors’ preferences for different fee structures, with information on the expected revenue generated from various fee structures to suggest a set… Read more
The Year-End Price of Risk in a Market for Liquidity
Mark D. Griffiths and Drew B. Winters Volume 3, Number 1, First Quarter 2005 Musto (1997, Journal of Finance 52(4), 1861-1882) identifies a year-end effect in commercial paper (CP) and suggests that the price of risk may increase at the year-end. Griffiths and Winters (2003, Journal of Business, forthcoming) show that the timing of the… Read more
Investors Like Firms That Expense Employee Stock Options and They Dislike Firms
Fayez A. Elayan, Kuntara Pukthuanthong and Richard Roll Volume 3, Number 1, First Quarter 2005 During 2002 and 2003, 140 publicly traded US firms announced their intention to recognize an accounting expense when stock options are granted to employees. Many similar firms elected not to expense options. We study the stock market’s reaction. There is… Read more
Implications of Correlated Default for Portfolio Allocation to Corporate Bonds
Mark B. Wise and Vineer Bhansali Volume 3, Number 1, First Quarter 2005 This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Using a multivariate normal Copula function for the joint default probabilities we show that retaining the… Read more
Design of Financial Systems: Towards a Syntheses of Function and Structure
Robert C. Merton and Zvi Bodie Volume 3, Number 1, First Quarter 2005 This paper proposes a functional approach to designing and managing the financial systems of countries, regions, firms, households, and other entities. It is a synthesis of the neoclassical, neo-institutional, and behavioral perspectives. Neoclassical theory is an ideal driver to link science and… Read more
Asset/Liability Management and Enterprise Risk Management of an Insurer
Thomas S. Y. Ho Volume 3, Number 1, First Quarter 2005 Risk management techniques used in banks and trading floors are generally not applicable to insurance companies. Risk measures and risk monitoring approaches must be developed to respond to the challenges to the insurance industry. This paper describes the current risk management practices for both… Read more
A Markov Chain Monte Carlo Method for Derivative Pricing and Risk Assessment
Sanjiv R. Das and Alistair Sinclair Volume 3, Number 1, First Quarter 2005 Derivative security pricing and risk measurement relies increasingly on lattice representations of stochastic processes, which are a discrete approximation of the movement of the underlying securities. Pricing is undertaken by summation of node values on the lattice. When the lattice is large… Read more