IDEAS home Printed from https://ideas.repec.org/a/eee/mulfin/v60y2021ics1042444x21000165.html
   My bibliography  Save this article

Evaluating the performance of U.S. international equity closed-end funds

Author

Listed:
  • Fletcher, Jonathan

Abstract

This study examines whether clientele effects are important in the evaluation of the performance of U.S. international equity closed-end funds (CEF) using the best clientele (BC) performance measure of Chretien and Kammoun (2017), and alternative stochastic discount factor models based on global factor models. The study finds that clientele effects are important when evaluating the performance of international CEFs, as there are significant differences between the BC performance and performance using the global factor models. International CEF provide significant superior performance using the BC measure and neutral performance with the global factor models.

Suggested Citation

  • Fletcher, Jonathan, 2021. "Evaluating the performance of U.S. international equity closed-end funds," Journal of Multinational Financial Management, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:mulfin:v:60:y:2021:i:c:s1042444x21000165
    DOI: 10.1016/j.mulfin.2021.100692
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042444X21000165
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.mulfin.2021.100692?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Wayne Ferson & Jerchern Lin, 2014. "Alpha and Performance Measurement: The Effects of Investor Disagreement and Heterogeneity," Journal of Finance, American Finance Association, vol. 69(4), pages 1565-1596, August.
    3. John H. Cochrane & Jesus Saa-Requejo, 2000. "Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 79-119, February.
    4. Hwang, Byoung-Hyoun, 2011. "Country-specific sentiment and security prices," Journal of Financial Economics, Elsevier, vol. 100(2), pages 382-401, May.
    5. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross‐Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, August.
    6. Laurent Barras & Olivier Scaillet & Russ Wermers, 2010. "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas," Journal of Finance, American Finance Association, vol. 65(1), pages 179-216, February.
    7. Wayne E. Ferson, 2013. "Ruminations on Investment Performance Measurement," European Financial Management, European Financial Management Association, vol. 19(1), pages 4-13, January.
    8. Almeida, Caio & Ardison, Kym & Garcia, René, 2020. "Nonparametric assessment of hedge fund performance," Journal of Econometrics, Elsevier, vol. 214(2), pages 349-378.
    9. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. "Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March.
    10. Mark M. Carhart & Jennifer N. Carpenter & Anthony W. Lynch & David K. Musto, 2002. "Mutual Fund Survivorship," Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1439-1463.
    11. Pastor, Lubos & Stambaugh, Robert F., 2003. "Liquidity Risk and Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 642-685, June.
    12. Francisco Barillas & Jay Shanken, 2018. "Comparing Asset Pricing Models," Journal of Finance, American Finance Association, vol. 73(2), pages 715-754, April.
    13. Dahlquist, Magnus & Soderlind, Paul, 1999. "Evaluating Portfolio Performance with Stochastic Discount Factors," The Journal of Business, University of Chicago Press, vol. 72(3), pages 347-383, July.
    14. André de Souza & Anthony W. Lynch, 2012. "Does Mutual Fund Performance Vary over the Business Cycle?," NBER Working Papers 18137, National Bureau of Economic Research, Inc.
    15. Hodrick, Robert J. & Zhang, Xiaoyan, 2001. "Evaluating the specification errors of asset pricing models," Journal of Financial Economics, Elsevier, vol. 62(2), pages 327-376, November.
    16. Martin Cherkes & Jacob Sagi & Richard Stanton, 2009. "A Liquidity-Based Theory of Closed-End Funds," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 257-297, January.
    17. Chen, Zhiwu & Knez, Peter J, 1996. "Portfolio Performance Measurement: Theory and Applications," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 511-555.
    18. Patro, Dilip Kumar, 2001. "Measuring performance of international closed-end funds," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1741-1767, September.
    19. Ross, Stephen A, 1978. "A Simple Approach to the Valuation of Risky Streams," The Journal of Business, University of Chicago Press, vol. 51(3), pages 453-475, July.
    20. Berk, Jonathan B. & van Binsbergen, Jules H., 2015. "Measuring skill in the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 118(1), pages 1-20.
    21. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
    22. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    23. St¨¦phane Chr¨¦tien & Manel Kammoun, 2019. "Mutual Fund Styles and Clientele-Specific Performance Evaluation," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(12), pages 1-89, December.
    24. Jonathan B. Berk & Richard Stanton, 2007. "Managerial Ability, Compensation, and the Closed‐End Fund Discount," Journal of Finance, American Finance Association, vol. 62(2), pages 529-556, April.
    25. Glosten, L. R. & Jagannathan, R., 1994. "A contingent claim approach to performance evaluation," Journal of Empirical Finance, Elsevier, vol. 1(2), pages 133-160, January.
    26. Wayne Ferson & Tyler R. Henry & Darren J. Kisgen, 2006. "Evaluating Government Bond Fund Performance with Stochastic Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 423-455.
    27. Huang, Emily J., 2015. "The role of institutional investors and individual investors in financial markets: Evidence from closed-end funds," Review of Financial Economics, Elsevier, vol. 26(C), pages 1-11.
    28. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-580.
    29. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-262, April.
    30. Peter Klibanoff & Owen Lamont & Thierry A. Wizman, 1998. "Investor Reaction to Salient News in Closed-End Country Funds," Journal of Finance, American Finance Association, vol. 53(2), pages 673-699, April.
    31. Huang, Dashan & Zhou, Guofu, 2017. "Upper Bounds on Return Predictability," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(2), pages 401-425, April.
    32. Heber Farnsworth & Wayne E. Ferson & David Jackson & Steven Todd, 2002. "Performance Evaluation with Stochastic Discount Factors," NBER Working Papers 8791, National Bureau of Economic Research, Inc.
    33. Hansen, Lars Peter & Richard, Scott F, 1987. "The Role of Conditioning Information in Deducing Testable," Econometrica, Econometric Society, vol. 55(3), pages 587-613, May.
    34. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    35. Guofu Zhou, 2018. "Measuring Investor Sentiment," Annual Review of Financial Economics, Annual Reviews, vol. 10(1), pages 239-259, November.
    36. Elton, Edwin J & Gruber, Martin J & Busse, Jeffrey A, 1998. "Do Investors Care about Sentiment?," The Journal of Business, University of Chicago Press, vol. 71(4), pages 477-500, October.
    37. Grinblatt, Mark & Titman, Sheridan, 1994. "A Study of Monthly Mutual Fund Returns and Performance Evaluation Techniques," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(3), pages 419-444, September.
    38. Dashan Huang & Fuwei Jiang & Jun Tu & Guofu Zhou, 2015. "Investor Sentiment Aligned: A Powerful Predictor of Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 791-837.
    39. Raymond Kan & Cesare Robotti & Jay Shanken, 2013. "Pricing Model Performance and the Two‐Pass Cross‐Sectional Regression Methodology," Journal of Finance, American Finance Association, vol. 68(6), pages 2617-2649, December.
    40. Ferson, Wayne & Mo, Haitao, 2016. "Performance measurement with selectivity, market and volatility timing," Journal of Financial Economics, Elsevier, vol. 121(1), pages 93-110.
    41. Lehmann, Bruce N & Modest, David M, 1987. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-265, June.
    42. Dong‐Hyun Ahn & H. Henry Cao & Stéphane Chrétien, 2009. "Portfolio Performance Measurement: a No Arbitrage Bounds Approach," European Financial Management, European Financial Management Association, vol. 15(2), pages 298-339, March.
    43. Chrétien, Stéphane & Kammoun, Manel, 2017. "Mutual Fund Performance Evaluation and Best Clienteles," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1577-1604, August.
    44. Robert Jarrow & Philip Protter, 2019. "A rational asset pricing model for premiums and discounts on closed‐end funds: The bubble theory," Mathematical Finance, Wiley Blackwell, vol. 29(4), pages 1157-1170, October.
    45. Wayne E. Ferson, 2010. "Investment Performance Evaluation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 207-234, December.
    46. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
    47. Owen A. Lamont & Richard H. Thaler, 2003. "Anomalies: The Law of One Price in Financial Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 191-202, Fall.
    48. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    49. Pontiff, Jeffrey, 1997. "Excess Volatility and Closed-End Funds," American Economic Review, American Economic Association, vol. 87(1), pages 155-169, March.
    50. Ferson, Wayne E. & Foerster, Stephen R., 1994. "Finite sample properties of the generalized method of moments in tests of conditional asset pricing models," Journal of Financial Economics, Elsevier, vol. 36(1), pages 29-55, August.
    51. Edwin J. Elton & Martin J. Gruber & Jeffrey A. Busse, 1998. "Do Investors Care About Sentiment?," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-028, New York University, Leonard N. Stern School of Business-.
    52. Antonio E. Bernardo & Olivier Ledoit, 2000. "Gain, Loss, and Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 144-172, February.
    53. Li, Haitao & Xu, Yuewu & Zhang, Xiaoyan, 2016. "Hedge Fund Performance Evaluation under the Stochastic Discount Factor Framework," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(1), pages 231-257, February.
    54. Heber Farnsworth, 2002. "Performance Evaluation with Stochastic Discount Factors," The Journal of Business, University of Chicago Press, vol. 75(3), pages 473-504, July.
    55. Juhani T. Linnainmaa, 2013. "Reverse Survivorship Bias," Journal of Finance, American Finance Association, vol. 68(3), pages 789-813, June.
    Full references (including those not matched with items on IDEAS)

    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. Jonathan Fletcher & Andrew Marshall, 2014. "Investor Heterogeneity and the Cross-section of U.K. Investment Trust Performance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(1), pages 67-89, February.
    2. Dong‐Hyun Ahn & H. Henry Cao & Stéphane Chrétien, 2009. "Portfolio Performance Measurement: a No Arbitrage Bounds Approach," European Financial Management, European Financial Management Association, vol. 15(2), pages 298-339, March.
    3. Jonathan Fletcher & Andrew Marshall, 2005. "The Performance of UK International Unit Trusts," European Financial Management, European Financial Management Association, vol. 11(3), pages 365-386, June.
    4. Ayadi, Mohamed A. & Kryzanowski, Lawrence, 2005. "Portfolio performance measurement using APM-free kernel models," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 623-659, March.
    5. Fletcher, Jonathan, 2014. "Benchmark models of expected returns in U.K. portfolio performance: An empirical investigation," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 30-46.
    6. Jonathan Fletcher & Patricia Ntozi‐Obwale, 2008. "Arbitrage Bounds and UK Unit Trust Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 580-600, April.
    7. Abel, Ernest & Fletcher, Jonathan, 2004. "An empirical examination of UK emerging market unit trust performance," Emerging Markets Review, Elsevier, vol. 5(4), pages 389-408, December.
    8. Bessler, Wolfgang & Drobetz, Wolfgang & Zimmermann, Heinz, 2007. "Conditional Performance Evaluation for German Mutual Equity Funds," Working papers 2007/22, Faculty of Business and Economics - University of Basel.
    9. Fletcher, Jonathan & Kihanda, Joseph, 2005. "An examination of alternative CAPM-based models in UK stock returns," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 2995-3014, December.
    10. Committee, Nobel Prize, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.
    11. Jonas Gusset & Heinz Zimmermann, 2014. "Why not use SDF rather than beta models in performance measurement?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(4), pages 307-336, November.
    12. Min, Byoung-Kyu & Kim, Tong Suk, 2012. "Are good-news firms riskier than bad-news firms?," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1528-1535.
    13. Fletcher, Jonathan, 2021. "International equity U.S. mutual funds and diversification benefits," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 246-257.
    14. Jonathan Fletcher & Patricia Ntozi-Obwale, 2009. "Exploring the Conditional Performance of U.K. Unit Trusts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(1), pages 21-44, August.
    15. Ferson, Wayne & Mo, Haitao, 2016. "Performance measurement with selectivity, market and volatility timing," Journal of Financial Economics, Elsevier, vol. 121(1), pages 93-110.
    16. Patrick Gagliardini & Diego Ronchetti, 2020. "Comparing Asset Pricing Models by the Conditional Hansen-Jagannathan Distance," Journal of Financial Econometrics, Oxford University Press, vol. 18(2), pages 333-394.
    17. Javier Rojo-Suárez & Ana Belén Alonso-Conde, 2020. "Impact of consumer confidence on the expected returns of the Tokyo Stock Exchange: A comparative analysis of consumption and production-based asset pricing models," PLOS ONE, Public Library of Science, vol. 15(11), pages 1-31, November.
    18. Ferson, Wayne E., 2013. "Investment Performance: A Review and Synthesis," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 969-1010, Elsevier.
    19. Ayadi, Mohamed A. & Chaibi, Anis & Kryzanowski, Lawrence, 2016. "Performance of Canadian hybrid mutual funds," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 124-147.
    20. Almeida, Caio & Ardison, Kym & Garcia, René, 2020. "Nonparametric assessment of hedge fund performance," Journal of Econometrics, Elsevier, vol. 214(2), pages 349-378.

    More about this item

    Keywords

    Good-Deal performance; Closed-End funds; Global factor models;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    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:eee:mulfin:v:60:y:2021:i:c:s1042444x21000165. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/mulfin .

    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.