IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v44y2004i1p97-120.html
   My bibliography  Save this article

Stock preferences and derivative activities of Australian fund managers

Author

Listed:
  • Matt Pinnuck

Abstract

The present paper examines both the characteristics of stocks that fund managers prefer to hold and their use of derivatives. We find strong evidence that fund managers prefer large, liquid and low volatility stocks. Weak evidence exists that fund managers prefer to hold stocks that are past winners. In relation to derivatives, just over half of the sampled Australian fund managers hold derivatives in the form of exchange traded options. Of those that do trade in derivatives, it is found the level of exposure to stock price movements achieved by options is not significant relative to the total investment portfolio.

Suggested Citation

  • Matt Pinnuck, 2004. "Stock preferences and derivative activities of Australian fund managers," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(1), pages 97-120, March.
    • Handle: RePEc:bla:acctfi:v:44:y:2004:i:1:p:97-120
    DOI: 10.1111/j.1467-629x.2004.00102.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-629x.2004.00102.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-629x.2004.00102.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    2. Aggarwal, Raj & Rao, Ramesh P, 1990. "Institutional Ownership and Distribution of Equity Returns," The Financial Review, Eastern Finance Association, vol. 25(2), pages 211-229, May.
    3. Chen, Hsiu-Lang & Jegadeesh, Narasimhan & Wermers, Russ, 2000. "The Value of Active Mutual Fund Management: An Examination of the Stockholdings and Trades of Fund Managers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 343-368, September.
    4. repec:bla:jfinan:v:55:y:2000:i:4:p:1655-1703 is not listed on IDEAS
    5. Louis K. C. Chan & Hsiu-Lang Chen & Josef Lakonishok, 2002. "On Mutual Fund Investment Styles," The Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1407-1437.
    6. Jennifer Lynch Koski & Jeffrey Pontiff, 1999. "How Are Derivatives Used? Evidence from the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 54(2), pages 791-816, April.
    7. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    8. Falkenstein, Eric G, 1996. "Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings," Journal of Finance, American Finance Association, vol. 51(1), pages 111-135, March.
    9. Del Guercio, Diane, 1996. "The distorting effect of the prudent-man laws on institutional equity investments," Journal of Financial Economics, Elsevier, vol. 40(1), pages 31-62, January.
    10. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock‐Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1695, August.
    11. Obrien, Pc & Bhushan, R, 1990. "Analyst Following And Institutional Ownership," Journal of Accounting Research, Wiley Blackwell, vol. 28, pages 55-76.
    12. Merton, Robert C., 1995. "Financial innovation and the management and regulation of financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 461-481, June.
    13. Bhushan, Ravi, 1989. "Collection of information about publicly traded firms : Theory and evidence," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 183-206, July.
    14. Chopra, Navin & Lakonishok, Josef & Ritter, Jay R., 1992. "Measuring abnormal performance : Do stocks overreact?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 235-268, April.
    15. Sawicki, Julia & Ong, Fred, 2000. "Evaluating managed fund performance using conditional measures: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 505-528, July.
    16. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    17. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 389-432.
    18. Myron S. Scholes, 1981. "The economics of hedging and spreading in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 1(2), pages 265-286, June.
    19. Freeman, Robert N., 1987. "The association between accounting earnings and security returns for large and small firms," Journal of Accounting and Economics, Elsevier, vol. 9(2), pages 195-228, July.
    20. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    21. Ron Bird & Helen Chin & Michael McCrae, 1983. "The Performance of Australian Superannuation Funds," Australian Journal of Management, Australian School of Business, vol. 8(1), pages 49-69, June.
    22. Hallahan, Terrence A. & Faff, Robert W., 1999. "An examination of Australian equity trusts for selectivity and market timing performance," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 387-402, November.
    23. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
    24. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rand Kwong Yew Low, 2018. "Vine copulas: modelling systemic risk and enhancing higher‐moment portfolio optimisation," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 423-463, November.
    2. David R Gallagher & Peter A Gardner & Camille H Schmidt & Terry S Walter, 2014. "Quality investing in an Australian context," Australian Journal of Management, Australian School of Business, vol. 39(4), pages 615-643, November.
    3. Mohamed AROURI & Raphaëlle BELLANDO & Sébastien RINGUEDE & Anne-Gaël VAUBOURG, 2009. "Herding by instutional investors: empirical evidence from french mutual funds," LEO Working Papers / DR LEO 700, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    4. Kingsley Fong & David R. Gallagher & Aaron Ng, 2005. "The Use of Derivatives by Investment Managers and Implications for Portfolio Performance and Risk," International Review of Finance, International Review of Finance Ltd., vol. 5(1‐2), pages 1-29, March.
    5. Alex Frino & Stewart Jones & Andrew Lepone & Jin Boon Wong, 2014. "Market Behavior of Institutional Investors around Bankruptcy Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 270-295, January.
    6. José M. Marín & Thomas A. Rangel, 2006. "The use of derivatives in the Spanish mutual fund industry," Economics Working Papers 990, Department of Economics and Business, Universitat Pompeu Fabra.
    7. Jamie Alcock & Godfrey Smith, 2017. "Non-parametric American option valuation using Cressie–Read divergences," Australian Journal of Management, Australian School of Business, vol. 42(2), pages 252-275, May.
    8. Andrew B. Ainsworth & Kingsley Fong & David R. Gallagher, 2008. "Style Drift and Portfolio Management for Active Australian Equity Funds," Australian Journal of Management, Australian School of Business, vol. 32(3), pages 387-418, March.
    9. Frino, Alex & Lepone, Andrew & Wong, Brad, 2009. "Derivative use, fund flows and investment manager performance," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 925-933, May.
    10. Karen L. Benson & Robert W. Faff & John Nowland, 2007. "Do Derivatives Have a Role in the Risk-Shifting Behaviour of Fund Managers?," Australian Journal of Management, Australian School of Business, vol. 32(2), pages 271-292, December.
    11. Teplova, Tamara & Sokolova, Tatiana & Kissa, David, 2023. "Revealing stock liquidity determinants by means of explainable AI: The role of ESG before and during the COVID-19 pandemic," Resources Policy, Elsevier, vol. 86(PB).
    12. Angel Zhong, 2022. "Institutional trading in stock market anomalies in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 893-930, March.
    13. Guha Deb, Soumya, 2018. "Institutional Investors and firm characteristics: New evidence from India," Research in International Business and Finance, Elsevier, vol. 46(C), pages 30-42.
    14. Markus Natter & Martin Rohleder & Dominik Schulte & Marco Wilkens, 2017. "Bond mutual funds and complex investments," Journal of Asset Management, Palgrave Macmillan, vol. 18(6), pages 433-456, October.
    15. Camilleri, Silvio John & Galea, Francelle, 2019. "The Determinants of Securities Trading Activity: Evidence from four European Equity Markets," MPRA Paper 95298, University Library of Munich, Germany.
    16. Mohamed El Hedi Arouri & Raphaëlle Bellando & Sébastien Ringuedé & Anne-Gaël Vaubourg, 2013. "Herding in French stock markets: Empirical evidence from equity mutual funds," Post-Print halshs-01066726, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cohen, Randolph B. & Gompers, Paul A. & Vuolteenaho, Tuomo, 2002. "Who underreacts to cash-flow news? evidence from trading between individuals and institutions," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 409-462.
    2. Edelen, Roger M. & Ince, Ozgur S. & Kadlec, Gregory B., 2016. "Institutional investors and stock return anomalies," Journal of Financial Economics, Elsevier, vol. 119(3), pages 472-488.
    3. Simone Brands & David R. Gallagher & Adrian Looi, 2006. "Active investment manager portfolios and preferences for stock characteristics," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(2), pages 169-190, June.
    4. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    5. Lan, Chunhua & Moneta, Fabio & Wermers, Russ, 2018. "Holding Horizon: A New Measure of Active Investment Management," CFR Working Papers 15-06, University of Cologne, Centre for Financial Research (CFR), revised 2018.
    6. Nerissa C. Brown & Kelsey D. Wei & Russ Wermers, 2014. "Analyst Recommendations, Mutual Fund Herding, and Overreaction in Stock Prices," Management Science, INFORMS, vol. 60(1), pages 1-20, January.
    7. Pinnuck, Matt, 2003. "An Examination of the Performance of the Trades and Stock Holdings of Fund Managers: Further Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(4), pages 811-828, December.
    8. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
    9. Lukas Menkhoff, 2002. "Institutional Investors: The External Costs of a Successful Innovation," Journal of Economic Issues, Taylor & Francis Journals, vol. 36(4), pages 907-933, December.
    10. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, January.
    11. Chen, Joseph & Hong, Harrison & Stein, Jeremy C., 2002. "Breadth of ownership and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 171-205.
    12. Vikas Agarwal & Wei Jiang & Yuehua Tang & Baozhong Yang, 2013. "Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide," Journal of Finance, American Finance Association, vol. 68(2), pages 739-783, April.
    13. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    14. Rob Bauer & Rogér Otten & Alireza Tourani Rad, 2006. "New Zealand mutual funds: measuring performance and persistence in performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(3), pages 347-363, September.
    15. Agarwal, Vikas & Gay, Gerald D. & Ling, Leng, 2013. "Window dressing in mutual funds," CFR Working Papers 11-07 [rev.2], University of Cologne, Centre for Financial Research (CFR).
    16. Chen, Hsiu-Lang & De Bondt, Werner, 2004. "Style momentum within the S&P-500 index," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 483-507, September.
    17. David R. Gallagher & Matt Pinnuck, 2006. "Seasonality in Fund Performance: An Examination of the Portfolio Holdings and Trades of Investment Managers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1240-1266, September.
    18. Casavecchia, Lorenzo, 2016. "Fund managers' herding and the sensitivity of fund flows to past performance," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 205-221.
    19. Kelsey D. Wei & Russ Wermers & Tong Yao, 2015. "Uncommon Value: The Characteristics and Investment Performance of Contrarian Funds," Management Science, INFORMS, vol. 61(10), pages 2394-2414, October.
    20. Verbeek, Marno & Wang, Yu, 2013. "Better than the original? The relative success of copycat funds," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3454-3471.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:44:y:2004:i:1:p:97-120. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.