Essays in financial economics

Essay 1: Is blood thicker than water: Spillovers in mutual fund families. I study spillover effects in mutual fund families in the 1990s. Net flows of new money into families depend on family performance and on the presence of stellar funds in the family. There is a positive relationship between fund net flow and family performance for most broad investment categories. For domestic stock funds, sensitivity of net flow to own recent performance and family performance decline with fund age, while sensitivity to funds' long-term performance does not. Investors have become more sensitive to short-term average family performance, less sensitive to fund performance in more distant past, and more forgiving of recent fund underperformance. There is evidence of performance persistence at the family level, yet no evidence that family performance predicts performance of its individual funds.; Essay 2: Monthly measurement of daily timers ( with W. N. Goetzmann and J. Ingersoll). Simulations suggest that the classic Henriksson-Merton parametric measure of timing skill is weak and biased downward when applied to the monthly returns of a daily timer. We propose an adjustment that mitigates this problem without the need to collect daily timer returns. Four tests of timing skill, carried out on 558 mutual funds, show that very few funds exhibit statistically significant timing skill. More encompassing, the adjusted-FF3 test (based on the specification that incorporates both the proposed adjustment and the Fama-French 3-factor model) is the least biased measure of timing skill among the four—it provides for a sharper inference regarding timing skill and helps mitigate biases associated with the choice of investment style.; Essay 3: On the timing ability and performance persistence of U.S.-based open-end international equity mutual funds: Evidence from daily data. I utilize daily mutual fund returns to obtain a sharper inference about the funds' ability to time the global stock market, regional stock markets, and currency risk. Several specifications show that very few funds exhibited significant timing skill. However, there is evidence of short-term persistence of risk-adjusted abnormal performance. This short-term persistence is economically important for the very best performers—funds in the top decile of risk-adjusted short-term performance in the ranking period—on the quarterly horizon, whereas it disappears on the annual horizon. Funds in the top decile in the ranking quarter continue to post an annualized abnormal risk-adjusted return of approximately 2.5% per year. There is little evidence that funds followed trend-chasing or contrarian strategies with respect to major stock markets.