Advanced Search
MyIDEAS: Login

The Markovian Dynamics of "Smart Money"

Contents:

Author Info

  • J-H Steffi Yang
Registered author(s):

    Abstract

    I develop a Markov model of samrt money chasing past winning funds while taking into account associated costs. The model also allows market capital entry and exit. The steady-state capital allocations re derived using constant transition probabilities. The results sugget that down side risk is significantly attributed to investor overreactoin, even though a small degree of investment movement as opposed to capital immobility can in fact stabilize the market. Furthermore, performance sensitivity makes it possible that two much-debated fund styles, passive indexing and active management, are simultaneously profitable. If money is insensitive, the model becomes a zero-sum game where one strategy's profitability is always at the cost of the other

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://repec.org/esFEAM04/up.11840.1086268553.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 797.

    as in new window
    Length:
    Date of creation: 11 Aug 2004
    Date of revision:
    Handle: RePEc:ecm:feam04:797

    Contact details of provider:
    Phone: 1 212 998 3820
    Fax: 1 212 995 4487
    Email:
    Web page: http://www.econometricsociety.org/pastmeetings.asp
    More information through EDIRC

    Related research

    Keywords: markov model; fund styles; drawdown; capital movement;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Grinblatt, Mark & Titman, Sheridan, 1993. "Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns," The Journal of Business, University of Chicago Press, vol. 66(1), pages 47-68, January.
    2. Chevalier, J. & Ellison, G., 1996. "Risk Taking by Mutual Funds as a Response to Incentives," Working papers 96-3, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Lu Zheng, 1999. "Is Money Smart? A Study of Mutual Fund Investors' Fund Selection Ability," Journal of Finance, American Finance Association, vol. 54(3), pages 901-933, 06.
    4. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
    5. William N. Goetzmann & Stephen J. Brown, 2005. "Performance Persistence," Yale School of Management Working Papers ysm451, Yale School of Management.
    6. Alessio Sancetta & Steve Satchell, 2004. "Calculating hedge fund risk: the draw down and the maximum draw down," Applied Mathematical Finance, Taylor and Francis Journals, vol. 11(3), pages 259-282.
    7. Judith Chevalier & Glenn Ellison, 1996. "Are Some Mutual Funds Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance," NBER Working Papers 5852, National Bureau of Economic Research, Inc.
    8. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    9. J.-H. Steffi Yang & Satchell, S.E., 2002. "The Impact of Technical Analysis on Asset Price Dynamics," Cambridge Working Papers in Economics 0219, Faculty of Economics, University of Cambridge.
    10. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
    11. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ecm:feam04:797

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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