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Meme assets are a unique and modern phenomenon in the stock market, characterized by social media-driven hype and significant price volatility. The aim of this paper is to explore the relationships between meme assets and sectoral dynamics. We employ the Granger causality test to examine predictive relationships between daily returns of GameStop and five meme exchange traded funds and eleven sector index funds. Our results show that selected meme assets have relatively limited impact on various sectoral indices and vice versa, suggesting that meme stocks and meme ETFs can offer diversification benefits for sectoral investments. These findings offer insights to investors in designing their approaches to investment strategies and portfolio management, as well as regulators in their attempt to ensure financial market stability. [ABSTRACT FROM AUTHOR]

An empirical analysis of equity index and active funds available for sale in the US, Europe, Japan, and Australia indicates that allocations built by investors deviate significantly from the global total equity market—irrespective of whether the authors look at portfolios based on index or active funds. The most noteworthy active position is the presence of a home bias—an observation that is most pronounced among Japanese investors and least pronounced among European investors in absolute terms. An assessment of products available to investors reveals that deviations from a purely passive portfolio are largely the result of deliberate choices made by investors rather than the result of products offered—be they actively managed or following an index. These results challenge the conventional wisdom that index funds dictate investors' exposures to be passive in aggregate. Rather, the authors find that investors use index funds—as they use active funds—to build portfolios that can be active in aggregate. [ABSTRACT FROM AUTHOR]

With the rapid expansion of index funds, including smart beta and factor portfolios, investors are able to cast a much wider net when selecting the strategies that best meet their goals and risk tolerances. However, what is active versus what is passive has become difficult to discern. This article argues that only the theoretical market portfolio is a "purely" passive catch, and in practice only index portfolios that track broad market-cap-weighted indices ("passive-adjacent") can be viewed as passive investing. Everything else is active. That said, everything that is active lies on a spectrum and can be evaluated based on a framework of "conceptual activeness." The authors discuss three key parts of conceptual activeness—simplicity, transparency, and acceptance. They link the portfolio design decisions to these three dimensions and provide an illustration of how the conceptual activeness framework can be applied in practice when evaluating commonly used, long-only factor strategies. [ABSTRACT FROM AUTHOR]

This study explores the financialization of agricultural commodities, focusing on how financial derivatives and index funds impact the volatility of agro-food markets. Using a Dynamic Conditional Correlation (DCC) GARCH model, we analyze volatility spillovers among key agricultural commodities, particularly maize, and related financial assets over a sample period from 2007 to 2020. Our analysis includes major financial assets like Exchange-Traded Funds (ETFs), the S&P 500 index, and agribusiness corporations such as ADM and Bunge and the largest corn flour producer, GRUMA. The results indicate that financial speculation, especially via passive investments such as ETFs, has intensified price volatility in commodity futures, leading to a systemic risk increase within the sector. This study provides empirical evidence of increased market integration between the agro-food sector and financial markets, underscoring risks to food security and economic stability. We conclude with recommendations for regulatory actions to mitigate systemic risks posed by the growing financial influence in agricultural markets. [ABSTRACT FROM AUTHOR]

In order to solve the problem of investment style drift of open industry theme fund, this paper divides 110 industry theme stocks into ten types based on ITC classification by establishing hierarchical model, constructing judgment matrix, calculating portfolio weight vector and portfolio consistency test. On this basis, combined with the risk weight coefficient of stocks, this paper divides ten types of stocks into three risk levels, and completes the classification of open-end funds based on industry themes and risk levels. Second, this paper defines the fund risk volatility index and the fund steady return index under the new combination, establishes the style drift index using the daily cumulative return rate, and carries on the symbolic processing. The fund style drift control rate is introduced as the judgment basis, and the secondary drift index with only positive and negative properties is taken as the final judgment index. Finally, based on the theory that the total risk value of funds before and after the drift remains stable, combined with the style weight value under nine investment styles, this paper establishes a fund style drift correction model by solving the weight interval of each style after the drift and comparing it with the specific weight before the drift, to realize the correction of the drifting result of funds. [ABSTRACT FROM AUTHOR]

Attention to environmental, social, and governance (ESG) investing has grown in recent years. Even after the SARS-CoV-2 (COVID-19) global pandemic, there has been a rise in financial instruments that are structured according to certain prescribed "sustainable finance" objectives. From a risk management perspective, and as we continue to see a rise in inflows into such instruments, it is important to appreciate that ESG markets will have a growing influence on our financial system and its development. In light of this, and using a sample of some of the most common and popular US-based ESG index funds, this study explores the extent to which herding behaviors are present in such markets. From a regulatory point of view, such behaviors are important to identify, given that they can lead to excess price volatility, bubbles, and other such market-destabilizing phenomena. In addition, this study builds a framework for exploring whether Twitter-based economic uncertainty, which is arguably a forward-looking indicator of investors' expectations, can exacerbate herding behaviors in ESG markets. Overall, this study shows the following: (i) herding behaviors are present in ESG markets; (ii) rises in Twitter economic uncertainty can potentially exacerbate such herding; (iii) although ESG funds, like traditional asset classes, generally show a negative risk–return tradeoff, this can be driven by changes in Twitter economic uncertainty. [ABSTRACT FROM AUTHOR]

A leveraged-index fund structure is presented that does not require reindexing and does not suffer from path dependence. As such, it is appropriate for long-term investment, including being suitable for retirement accounts because investors will never lose more than their initial investment. By applying this leveraged fund structure to an index, such as the S&P 500 or Dow Jones Industrial Average, that is designed to rise over the long term, investors can obtain outsized returns that beat market averages. [ABSTRACT FROM AUTHOR]

Portfolio Diversification leads to risk reduction. Markowitz (1952) mean variance approach talks about efficient frontier. Efficient frontier is a graph of portfolios with a higher return for a given risk. This efficiency could be achieved through diversification in securities whose returns have low coefficients of correlation. The key to this process is to determine the weights of all the securities in the portfolio which could be a complex mathematical process based on historical risk and returns. An equal weight portfolio without rebalancing gives equal weight to all the securities and holds them for a long term. Passive Index funds invest in index stocks as per their weightage in index based on free float market capitalization. This study explored Nifty 50 as a base index over a period of 29 years and made various combinations equal weighted without rebalancing and index portfolios based on monthly data availability and compared their risk return performance. It also explored the performance of Nifty Equal weight index with Nifty, but the risk return for the second part was slightly in favor of Nifty index investing because of quarterly rebalancing. Quarterly rebalancing leads to money taken from gainers and investment in underperformers. This goes against the basic logic of holding on to the gainers. In all the long-term investing cases equal weight portfolio without rebalancing performed better on return/risk ratio as compared to free-float market capitalizationbased index portfolio. Hence equal weight investing without rebalancing could be considered by passive retail or institutional investors. [ABSTRACT FROM AUTHOR]

Research Question/Issue: In this paper, we examine the effects of share lending or recall on proxy voting, with a particular focus on the role of index funds. Research Findings/Insights: Our study reveals that higher index ownership in a firm is associated with an increased likelihood of share recall, particularly in the presence of higher institutional ownership, lower past return performance, smaller firm size, and when more shares are held by younger fund families with higher turnover ratios or higher management fees. Using the Russell 1000/2000 Index reconstitution as an exogenous shock, we establish a causal relationship between index ownership and share recall through instrumental variable (IV) analysis. Furthermore, we find a positive correlation between index ownership and share recall for proxy voting proposals related to compensation, director election, and those sponsored by management. In subsequent proxy votes, shareholder‐sponsored proposals and environmental, social, and governance (ESG) proposals receive more support in firms with higher index ownership, especially when share recall is more prevalent. Our analysis does not provide evidence to support the conjecture that firms with higher index ownership are more vulnerable to empty voting issues. Theoretical/Academic Implications: Our study enhances the understanding of how index funds recall shares during proxy voting and the impact of index ownership on voting outcomes. The findings support the practice of index funds recalling shares to actively engage in proxy voting, effectively addressing the conflict between short‐term profit‐seeking through securities lending and long‐term governance responsibilities. Practitioner/Policy Implications: We contribute to a better understanding of the role of index funds in corporate governance and shed light on the consequences of securities lending in proxy votes. These findings have important implications for investors, policymakers, and market participants in managing the potential conflicts arising from securities lending activities and promoting effective corporate governance practices. [ABSTRACT FROM AUTHOR]

This paper studies the combination of random forest (RF) and classical statistical modeling. We propose two algorithms: RF cluster + ridge and RF regression + ridge, in which the RF reduces overfitting and has a good anti-noise ability. The ridge regression can effectively handle the correlated data by the ridge penalty. To test the performance of the proposed techniques, we model and track the S&P 500 index. Index tracking aims to replicate the returns of an index fund and is very popular in finance. We compare the performance of the proposed methods with those of several existing methods. The portfolio obtained by each technique is quantified using the tracking error. We find that this combination always has higher accuracy. Empirical results show that the proposed methods are qualified for index funds. Our findings shed light on the synthesis of machine learning and statistical modeling techniques and provide an effective practice of this combination. [ABSTRACT FROM AUTHOR]

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Recently, interest in socially responsible investing has grown, including new investment vehicles such as environmental, social, and governance exchange-traded funds (ESG ETFs). Despite their rising popularity, few studies have attempted to examine the performance characteristics of these stylized funds. This study aimed to fill this knowledge gap by elaborating on the performance attributes of ESG ETFs and examining fund managers' security selection and market timing skills. Our results suggest that these funds generally underperform relative to conventional ETFs in many aspects. Additionally, the market timing skills of fund managers require improvement but are comparable to those of conventional ETFs. These results are robust to selecting the individual funds and alternative indices used in the sample. Furthermore, both the security selection and market timing skills of ESG ETF managers deteriorated significantly during the COVID-19 pandemic. Finally, the results indicate a slightly weaker cointegrated relationship between ESG ETFs and their benchmark indices when compared to conventional ETFs, suggesting that potential investors in ESG ETFs should carefully inspect the funds to make informed decisions. [ABSTRACT FROM AUTHOR]

The primary purpose of this study is to evaluate the active management in a mutual fund from the perspective of a Czech retail investor and compare it against their passive alternative. In total, 50 mutual funds and three passive exchange-traded funds (ETFs) were analyzed across three regional groups (Global, American, and European) from July 2011 to June 2021. The data was analyzed through regression utilizing the Fama-French 3 factor model to determine the funds' alpha, ensuring a fair risk-adjusted comparison of funds. The detailed analysis showed that 13 of the 50 officially active funds are not considered active and may be suspected of so-called closet indexing. Such funds are being paid for active management, which they are not performing. Thus, the client is being deceived and is essentially getting an overpriced index fund. Moreover, it was confirmed that ongoing fee is a negative performance predictor – more expensive funds deliver lower net returns; thus, they cannot justify their cost. The findings mentioned above were consistent among the analyzed groups but were less apparent and significant for the European funds. Lastly, the results were compared with previous research and discussed from theoretical and practical perspectives. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this study is to compare market reactions to the change in the demand by index funds between large and small company stocks by examining the transition of the S&P 500, S&P 400 MidCap and S&P 600 SmallCap indexes from market capitalization to free-float weighting. This unique information-free event allows not only avoiding confounding information signaling and investor awareness effects but also comparing the effect of the decrease in demand on stocks of different sizes. Design/methodology/approach: This study uses the event study methodology to calculate abnormal returns and trading volume around the full-float adjustment day. It also tests for significant changes in institutional ownership and liquidity. Multivariate regressions are used to examine the relation of liquidity changes and price elasticity of demand to the cumulative abnormal returns around the full-float adjustment day. Findings: This study finds significant decreases in stock price accompanied with significant increases in trading volume on the full-float adjustment day, and significant gains in quasi-indexer institutional ownership and liquidity. The main finding is that cumulative abnormal returns around the event period are related to changes in the number of quasi-indexer and transient institutional shareholders, not to changes in liquidity or price elasticity of demand. Originality/value: This study provides the first comprehensive comparison analysis of stock market reactions to the decline in demand between large and small company stocks. As an important implication for future studies of the index effect, changes in institutional ownership should be considered in the analysis. [ABSTRACT FROM AUTHOR]

Purpose: Against the background of sustainable finance, this study aims to address whether global asset management firms started transforming toward more environmentally friendly investment policies according to the Agenda for Sustainable Development launched by the United Nations General Assembly in 2015. Design/methodology/approach: The authors apply qualitative, explorative research methods through the development of the case study of BlackRock, Inc. (USA). Addressing sustainable finance, the authors compare the opposite to the editorial page (op-eds) communication strategy of BlackRock against real life for the period from 2015 until today. Findings: The op-eds communication strategy by BlackRock is multi-faceted targeting to develop a leading sustainable reputation supported by fine-grained relationships to business and policy makers. This study empirically proves that there is a discrepancy between BlackRock's op-eds communication contends concerning sustainable finance and the reality. Among others this study found that BlackRock still invests in fossils and increasingly launches passively managed funds with limited transparency standards in terms of sustainable finance. Research limitations/implications: This study contributes to the corporate social responsibility literature focusing on fossil energy and sustainable finance. As BlackRock did not reply to the authors' requests for conducting interviews, the authors rely on a broad range of secondary sources including material provided by non-governmental organizations. This study proposes that research should be amplified by further empirical studies among various sustainable finance stakeholders based on the research propositions the authors have developed as a result of this study. Practical implications: This research provides empirical evidence for business executives and policy decision-makers involved in the energy industry, corporate ethics and global financial asset management. Social implications: This study provides insights toward sustainable finance policies of BlackRock with corresponding outcomes related to global climate change and its impact on societies. Originality/value: This study delivers empirical evidence on the energy transformation from fossils toward renewables against the background of sustainable finance strategies of large asset management enterprises such as BlackRock which is rare to find in the literature. [ABSTRACT FROM AUTHOR]

Index funds are an increasingly important part of the U.S. stock market, with the average S&P 1500 firm having more than 20% of its equity held by index funds in 2018. Compared to other owners, index fund managers face greater constraints and limitations when selecting portfolio investments and making trading decisions about whether, and when, to enter or exit a position. Using hand-collected data to examine the ramifications of increased ownership by constrained index funds, we find that greater index fund ownership is associated with less bias (greater frequency of missing earnings and fewer abnormal accruals) and less obfuscation (more readable, more negative, and more specific disclosures) in financial reporting. Additional analysis finds results consistent with this effect being due to index funds wielding power through lower trading and not higher oversight. Finally, we document several important conceptual and empirical factors to consider when examining index fund ownership, compared to institutional-level holdings or changes in index constituents. [ABSTRACT FROM AUTHOR]

The study has been inspired by the emergence of technology-based assets, namely, FinTech, Robotics, and Blockchain in the 4th Industrial Revolution. We are examining diversification opportunities with nonconventional technology funds based on FinTech, Robotics, and Blockchain while investing in MSCI Emerging Markets Index, and finally gauging the most resilient fund during the pre-and post-outbreak of COVID-19. The five technology-driven funds considered are ARK FinTech Innovation Exchange Traded Funds (ARKF), Global X FinTech Exchange Traded Funds (FINX), First Trust NASDAQ Artificial Intelligence and Robotics Exchange Traded Funds (ROBT), Global X Robotics and Artificial Intelligence (BOTZ), and Ishares Robotics and Artificial Intelligence (IRBO) to investigate diversification opportunities with MSCI Emerging Markets Index. The time-varying dynamic spillover using the Vector Auto Regression Model for average, low, and high volatility quantiles and the network of volatility connectedness based on quantile VAR have been applied to capture diversification and identifying the most resilient fund. The study found that ARKF and FINX provide diversification opportunities. In each quantile, these two funds are evidence of diversification, and BOTZ, also shows diversification evidence. Moreover, FINX is the throughout resilient fund, and ARKF is the most resilient in extreme quantiles. Throughout the quantiles, it is perceived a significant impact of COVID-19 on the total connectedness of Funds with the emerging market index. [ABSTRACT FROM AUTHOR]

Passively managed index funds now hold over 30 |$\%$| of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance. We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management on contentious governance issues; (b) there is no evidence they engage effectively publicly or privately; and (c) they promote less board independence and worse pay-performance sensitivity at their portfolio companies. Overall, the rise of index funds decreases the alignment of incentives between beneficial owners and firm management and shifts control from investors to managers. [ABSTRACT FROM AUTHOR]

This article explores the factors that drive risk and active risk in asset manager model portfolios. The study reveals that model portfolios with different allocations to index and active funds have similar levels of total and active risk. It also finds that a significant portion of the active risk in model portfolios is due to style factors, although the average model has limited exposure to commonly rewarded style factors. The article suggests that there is room for improvement in model performance by adjusting factor exposures. The data used in the analysis comes from Morningstar and BlackRock's Aladdin Risk system. The article discusses the impact of asset allocation on active risk calculations, including the potential for double counting certain exposures in fixed income indexes. It also notes that the Aladdin Risk Model used in the study does not capture the impact of asset class timing. The results show that there is little variation in total risk between models using active funds and index funds. The article further examines active risk relative to peer and custom benchmarks, as well as asset class risk decompositions. It concludes that style factors contribute the most to risk. This document focuses on the factor and risk exposures of model portfolios, which are increasingly popular among individual investors. The analysis primarily looks at equity and fixed income exposures and finds that most model portfolios have minimal exposure to rewarded style factors such as size, value, momentum, profitability, and volatility. The study suggests that model builders could potentially enhance returns by adjusting the magnitude of their style factor exposures. Additionally, the document highlights the potential for future research on performance [Extracted from the article]

When corporations inflict injuries in the course of business, shareholders wielding environmental, social, and governance ("ESG") principles can, and now sometimes do, intervene to correct the matter. In the emerging fact pattern, corporate social accountability expands out of its historic collectivized frame to become an internal subject matter--a corporate governance topic. As a result, shareholder accountability surfaces as a policy question for the first time. The Big Three index fund managers, BlackRock, Vanguard, and State Street, responded to the accountability question with ESG activism. In so doing, they defected against corporate legal theory's central tenet, shareholder primacy. Shareholder primacy builds on a pair of norms. The first is substantive and concerns purpose--the firm should be managed for the shareholders' financial benefit. The second norm is procedural and concerns power--shareholders should be able to tell managers how to run the firm. Once put into operation, the two norms are supposed to ensure that market control over production, and hence economic efficiency, is maximized. Prior to the Big Three's turn to ESG activism, the two norms operated in tandem--power on the ground assured shareholder value maximization in the boardroom toward the generally accepted efficiency goal. But power on the ground now also triggers questions about shareholder accountability, and the Big Three, upon switching into activist mode to address those questions, put the two norms out of synch, causing the directive of management for the shareholders' financial benefit to lose focus and compromising shareholder primacy in the performance of its mission. This Article looks closely at this confrontation between shareholder primacy and shareholder accountability, asking three questions: (1) whether investment institutions can legitimately sacrifice their investors' financial returns in connection with the installation of socially responsible business practices at operating companies; (2) whether assuming ESG concerns take a permanent place at the top of the corporate governance agenda, shareholder primacy can continue to provide a viable cornerstone for corporate legal theory; and (3) whether recent institutional interventions in the name of ESG herald a structural shift toward a welfarist corporation. The Article answers all three questions in the negative. The sequence of questions and answers delivers us to an unsatisfactory destination riven by contradiction and tension. [ABSTRACT FROM AUTHOR]

This paper examines the power and corporate governance significance of the three largest index fund managers, BlackRock, Vanguard, and State Street Global Advisors, commonly referred to as the "Big Three." I provide evidence that they play a key role in strengthening the sustainable and socially responsible activities of portfolio companies. In this paper, I find that the Big Three are positively associated with the overall ESG score, environmental subscore, and social subscore. Interestingly, greater Big Three ownership leads to a higher vote-for percentage of SRI-related proposals, implying that voting is a channel through which they exert influence. My findings highlight the Big Three's commitment to tackling ESG-related issues, in which they believe that integration of sustainability-related information can help portfolio risk management, and their ability to steer corporate decision-making. [ABSTRACT FROM AUTHOR]

The article in the Journal of Beta Investment Strategies discusses the active versus passive investing debate, highlighting the overlap between the two strategies. It emphasizes that investors should focus on the characteristics and objectives of active and passive investing rather than the labels. The article explores market-cap and alternatively weighted indexes, pooled indexing vehicles, direct indexing, and the importance of considering aggregate portfolio exposure. The author encourages readers to consider different perspectives on active and passive investing and to focus on strategy characteristics and investor objectives. [Extracted from the article]

Direct indexing provides an alternative to index fund vehicles that offers more choice, greater flexibility, and tax advantages well beyond the scope of commingled investments. By directly holding index constituents, investors can achieve greater flexibility through environment, social, and governance (ESG) screens to filter the investable universe and generate tax advantages through tax-loss harvesting. These advantages are available in both equities and fixed income. However, fixed income offers additional dimensions of personalization such as duration and tax optimization between taxable and tax-free securities. Bond ladders are an effective way to track the overall bond market because of their unique reinvestment structure, and those reinvestments can be optimized by rules-based allocation decisions. [ABSTRACT FROM AUTHOR]

Hedge funds use different strategies to outperform benchmark indices by undertaking complex, versatile and dynamic techniques. These strategies may however create alpha generating opportunities in the time series that may be contrary to the existence of random walk behaviour. Tests using unit-root structural break analysis led to rejection of random walk hypothesis favouring trend stationarity or mean reversion. Additional tests including structural breaks are conducted to establish persistence of alpha generating opportunities for twelve different hedge fund indices. For some strategies, profitable prospects occur only before the break date, as evidence suggests a paradigm shift between the two periods. [ABSTRACT FROM AUTHOR]

The sustainability of social pension insurance is of great significance in guaranteeing the essential life of the elderly and promoting social stability. Based on the provincial panel data from 2012 to 2020, this study uses non-spatial measurement methods, ArcGIS visualization research methods, and geographic detectors to study the regional differences in China's pension fund balances and the underlying influencing factors. Compared with the traditional way of establishing regression equations to explore the correlation of influencing factors, geographic detectors can quantify the strength of each influencing factor and detect the interaction of different influencing factors. This study found that: First, the growth rate of China's overall pension fund balances has been declining yearly, with the fastest decline in northeast China, the middle in the Western and Central regions of China, and the slowest decline in Eastern China. Second, the spatial distribution of pension fund balances shows agglomeration characteristics, with high-value areas mainly distributed in Eastern China and low-value regions distributed primarily in Western and Northeastern China. Third, the overall Theil index for pension fund balances is trending down, but the Theil index for the Eastern region is on the rise. Fourth, seven factors, including the working-age population, the population aged 65 and above, and regional GDP, are the main factors that lead to regional differences in the balance of urban and rural residential insurance funds. Finally, the superimposed effects of each element are reflected in double-factor enhancement or non-linear enhancement relation. [ABSTRACT FROM AUTHOR]

"How Economics Can Save the World: Simple Ideas to Solve Our Biggest Problems" is a book by Erik Angner that aims to defend economics as a discipline and offer solutions to global issues. Angner, a Professor of Practical Philosophy, argues that economics can shape a more equitable and sustainable world. The book covers a range of topics, including poverty alleviation, personal finance, happiness, changing social norms, building communities, mitigating overconfidence, parenting, climate change, and market design. While the book emphasizes the transformative power of economics, it also calls for economists to be more inclusive and open to interdisciplinary dialogue. [Extracted from the article]

A detailed analysis of management and performance fees for asset managers and investment funds is undertaken. While fund fees are considered as a cost of capital for investors, the structuring of such fee mechanisms in a fund can also influence a fund manager's decisions and investment strategy, thereby also influencing the investment performance of the investors funds. The study undertaken will allow for an assessment of the effect of fee structures and the potential for asymmetric incentives to arise that may promote adverse risk-taking behaviours by the fund manager, to the detriment of the investor or retiree who places a portion of their retirement savings into such a managed fund with such fee structures. As such, understanding the mechanism of fee charging as well as pricing the fees correctly is vital. An exploration of the application of actuarial distortion pricing methods for complete and incomplete market valuation is performed on a variety of path-dependent option-like performance fee structures for various funds in the European and American markets. Furthermore, several scenario analysis and sensitivity studies are undertaken. The class of Net Asset Value models adopted are Lévy processes, and the pricing is performed via Monte Carlo techniques. [ABSTRACT FROM AUTHOR]

We investigate whether mutual funds that invest in initial public offerings (IPOs) outperform the Renaissance IPO Index, IPOX® 100 U.S. Index, and other comparable equity funds that do not invest in IPOs. We also explore whether investors gain diversification benefits by investing in IPO‐focused mutual funds. Using a sample of active open‐ended US equity mutual funds, we find that IPO‐focused funds outperform the Renaissance IPO Index and comparable funds that do not invest in IPOs. Moreover, they provide investors with the benefit of diversification along with better returns. We also find the value added by active management based on IPO strategy. [ABSTRACT FROM AUTHOR]

We question time‐invariant indices as fund benchmarks and propose a regime‐switching methodology to identify time‐varying de facto benchmarks from a pool of market‐based indices, with or without a risk‐free asset. To ameliorate the benchmark mismatch issue, we highlight the importance of using time‐varying indices‐based benchmarks for fund performance evaluation. Our de facto benchmark captures fund styles better than other benchmark choices, substantially improves the identification of significant fund alphas, and provides better out‐of‐sample forecasts. We uncover several new findings in terms of fund performance evaluation using our de facto benchmarks. [ABSTRACT FROM AUTHOR]

We examine the impact of mutual fund dual ownership (i.e., simultaneous holdings of stocks and bonds of the same company by mutual fund families) on corporate innovation. Our findings indicate that dual ownership is positively associated with innovation quantity, quality, generality, and originality. This effect is mainly driven by non-index funds, which are more likely to be active monitors. Consequently, both stocks and bonds held by dual owners tend to generate higher returns, particularly for more significant, groundbreaking innovations. These results suggest that mutual fund dual ownership mitigates conflicts of interest between shareholders and creditors, thereby enhancing innovation and firm value. However, the relation between dual ownership and innovation turns negative during the recent financial crisis, suggesting that shareholder-creditor conflicts culminate in extreme financial distress, exacerbating dual holders' risk aversion, and hence, hindering corporate innovation. [ABSTRACT FROM AUTHOR]

Purpose: This study aims to provide a comparative insight into the level of informational efficiency and irregularities of Shariah-compliant stocks and conventional stocks in three emerging markets, namely, China, Malaysia and Pakistan. The empirical evidence is provided for pre-crisis and crisis periods caused by the Covid-19 pandemic. Design/methodology/approach: Informational efficiency is measured using the variance ratio (VR) Test developed by Kim (2006). The Approximate Entropy (ApEn) Metrics is used to investigate the level of irregularities in stock prices caused by the pandemic. Findings: All the three emerging markets in the sample are not immune to the crisis caused by Covid-19 pandemic. The level of informational efficiency of both the Shariah-compliant and conventional stock is affected by the crisis. However, the former exhibits relatively high level of informational efficiency and stability in returns as compared to more volatility of conventional stocks. Practical implications: This study provides market agents and policy makers with a robust assessment of the impact of the Covid-19 pandemic on informational efficiency of Shariah-compliant and conventional stocks. Relatively high informational efficiency of Shariah-compliant stocks indicates that they are more transparent and that investors can trust the Shariah-compliant stocks more. This higher level of transparency and trust leads to more steady returns and lower levels of risk even during turbulent time like Covid-19. Investors can gain superior returns by conducting fundamental analysis and investing in index funds. Originality/value: To the best of the authors' knowledge, this is the first study that highlights the difference in informational efficiency of conventional stocks and Shariah-compliant stocks in the crisis period caused by Covid-19. Unlike previous studies, this study uses firm level data which enables firm-wise assessment of informational efficiency. [ABSTRACT FROM AUTHOR]

This paper studies abnormal returns to mutual funds from using a firm fundamental trading strategy. We find that the abnormal returns and the Sharpe Ratio are higher for actively managed mutual funds holding fundamentally strong stocks. These results are driven by the lower risk of stocks with strong fundamentals rather than higher returns. Compared to benchmark index funds, actively managed mutual funds do not slant their portfolios towards fundamentally strong stocks. The lack of trading on firm fundamentals appears to be related to manager incentives as fund inflows are uncorrelated with changes in the fundamentals of their holding stocks. [ABSTRACT FROM AUTHOR]

The increasingly influential 'universal owner' theory posits that index funds have incentives to reduce cross-firm externalities to maximise portfolio value. We develop a more general conceptual framework for understanding how firms' ownership structures and company law affect the internalisation of cross-firm externalities. This approach takes account of the fact that across the world most firms have controlling shareholders. We introduce the concept of 'controller wealth concentration' as a determinant of controllers' pecuniary incentives to internalise externalities. Our framework suggests that, in principle, dual class (and other controlling minority) structures have the hitherto ignored advantage of allowing controllers to diversify their personal wealth (thereby potentially mitigating cross-firm externalities). We provide some evidence that controllers' personal wealth is nonetheless typically undiversified and discuss possible reasons why controllers fail to diversify. We conclude that controlling shareholders typically have weak pecuniary incentives to internalise externalities, underscoring the importance of government regulation of externalities. [ABSTRACT FROM AUTHOR]

According to the "portfolio primacy" theory, large asset managers, and in particular large index funds, can and will undertake the role of "climate stewards" and will push corporations to reduce their carbon footprint. This theory is based on the view that index fund portfolios mirror the entire market and therefore have strong financial incentives to reduce market-wide threats, such as climate change. But how much can we rely on portfolio primacy to mitigate the effects of climate change? In this Article, I provide a conceptual and empirical assessment of the potential impact of portfolio primacy on climate change mitigation by examining the scope of action, economic incentives, and fiduciary conflicts of index fund managers. The analysis reveals three major limits, each reinforcing the others, that undermine the promise of portfolio primacy. First, the potential scope of index fund stewardship is narrow, as most companies around the world, including most carbon emitters, are private or controlled companies. Second, index funds internalize only a fraction of the social cost of climate change and therefore have very weak incentives to engage in ambitious climate stewardship. Third, index fund managers advise dozens of index funds with conflicting interests with respect to climate mitigation and therefore face serious fiduciary conflicts that would hamper any ambitious mitigation strategy. This analysis shows that we should have very modest expectations about the role of portfolio primacy in the fight against climate change. [ABSTRACT FROM AUTHOR]