Friday, March 2, 2012

2/3/2012: Few recent links

To tidy up a reading list:

  1. Harald Uhlig's excellent essay on economics and reality - the links between empirical, implied and theoretical analytics. Worth a read. Link here.
  2. Technical, but nonetheless insightful article on the returns differentials for actively v passively managed funds by Diane Del Guercio and Jonathan Reuter "Mutual Fund Performance and the Incentive to Invest in Active Management" NBER WP17491. The main results: known fact = actively managed funds underperform index funds in comparisons when returns considered exclude considerations of costs and services differentials. The study controls for differences across various mutual funds by controlling for 3 market segments: retail funds sold to investors, retail funds sold via brokers and institutional funds. The study finds that underperformance is strongest in the broker-sold segment and weakest in the directly sold funds segment. Authors find that "within the direct-sold serment, the risk-adjusted, after-fee returns of actively managed funds are statistically indistinguishable from those of index funds". Furthermore, "to rationalize differences in performance, we test for differences in the flow-performance relation across the three segments. We find that fund flows respond most strongly to risk-adjusted returns in the direct-sold segment. We find a wide variety of evidence that direct-sold funds respond to investor preferences for risk-adjusted performance by investing more in active management. Our findings suggest that the underperformance of the average actively managed fund reflects its weaker incentives to generate alpha rather than an inability to generate alpha. We argue that our findings also help to explain the continued demand for actively managed funds."
  3. Another interesting paper from NBER by David Hummels et al, titled "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data" (WP17496) looks at offshoring and exporting effects on wages by skill-types. Per study: "We find that within job spells, (1) offshoring tends to increase the high-skilled wage and decrease the low-skilled wage; (2) exporting tends to increase the wages of all skill types; (3) the net wage effect of trade varies substantially across workers of the same skill type; and (4) conditional on skill, the wage effect of offshoring exhibits additional variation depending on task characteristics. We then track the outcomes for workers after a job spell and find that those displaced from offshoring firms suffer greater earnings losses than other displaced workers, and that low-skilled workers suffer greater and more persistent earnings losses than high-skilled workers."
  4. Great paper on the effects of the Euro crisis on non-financial European firms by Stijn Claessens, Hul Tong and Igor Zuccardi (IMF Working Paper 11/27), titled "Did the Euro Crisis Affect Non-Financial Firm Stock Prices Through a Financial or Trade Channel?" The study finds that for stock price responses over the past year for 3045 non-financial firms in 16 countries: (1) policy measures announced impacted financially-constrained firms more, particularly in creditor countries with greater bank exposure to peripheral euro countries, and (2) trade linkages with peripheral countries also played a role, with euro exchange rate movements causing differential effects.


Brian O' Hanlon said...


The paper by Diane Del Guercio and Jonathan Reuter, looks fairly interesting. It reminds me of a lecture by Dr. Paul Woolley, that I got in as a citation in my first ever amateur's economics paper, that I published on Scribd here:

It is probably atrociously written by comparison with anything of true academic standards - but that is why it also may prove to be an interesting read - exactly because it is something painstakingly put together by a non-professional.

Ira Millstein, 'Dean of Corporate Governance' at Yale University, also has quite interesting things to say, which remind me a lot of Dr. Woolley's comments at LSE, and the whole active investing subject.
I think that I managed to squeeze in a letter Millstein wrote to the New York Times, into my citations in my paper also. All the best, B.

Brian O' Hanlon said...

Ira Millstein's interview on Open Mind with Richard Heffner, 'The curse of Short Term-inism', are enjoyable enough, here:

Part I

Part II

Brian O' Hanlon said...

Mr. Gurdgiev,

I was writing a follow up comment this evening. It got too long. But I compiled it into a short blog entry here, for your attention at some time.

It is just an open question about economic policy making approaches in Ireland, in the future.


Brian O' Hanlon