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Testing The Incomplete Arbitrate Hypothesis: Evidence From Australian Wholesale Superannuation Funds

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  • Michael E. Drew
  • Jon D. Stanford
  • Madhu Veeraraghavan

Abstract

This paper tests the efficiency of capital markets when information is costly to obtain by analysing the performance of Australian wholesale superannuation funds specialising in the management of domestic equity portfolios from 1991 through 1999. Using a fund regression approach, the paper finds evidence that is consistent with an incomplete arbitrage function, with investment managers generating returns sufficiently high to compensate them for the increased costs of active asset selection. Risk-adjusted returns in the Australian superannuation fund industry, net of management fees and expenses, are comparable to the returns from a passive asset selection policy.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2001/Michael%20Drew%20-%20No.%2099.pdf
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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 099.

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Date of creation: 02 Oct 2001
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Handle: RePEc:qut:dpaper:099

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Web page: http://www.bus.qut.edu.au/faculty/economics/
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Keywords: Superannuation funds; Australia;

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  1. Coggin, T Daniel & Fabozzi, Frank J & Rahman, Shafiqur, 1993. " The Investment Performance of U.S. Equity Pension Fund Managers: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 48(3), pages 1039-55, July.
  2. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
  3. Drew, Michael E. & Stanford, Jon D., 2001. "The Impact of Fund Attrition on Superannuation Returns," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 31(1), pages 25-32, March.
  4. Michael E. Drew & John Stanford, 2001. "Asset Selection And Superannuation Fund Performance: A Note For Trustees," Economic Papers, The Economic Society of Australia, vol. 20(1), pages 57-65, 03.
  5. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
  6. 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.
  7. Cai, Jun & Chan, K C & Yamada, Takeshi, 1997. "The Performance of Japanese Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 237-73.
  8. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-98, June.
  9. Grossman, Sanford J, 1976. "On the Efficiency of Competitive Stock Markets Where Trades Have Diverse Information," Journal of Finance, American Finance Association, vol. 31(2), pages 573-85, May.
  10. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
  11. Edelen, Roger M., 1999. "Investor flows and the assessed performance of open-end mutual funds," Journal of Financial Economics, Elsevier, vol. 53(3), pages 439-466, September.
  12. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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Cited by:
  1. Kathleen Goffey & Andrew Worthington, 2002. "Motor Vehicle Usage Patterns in Australia: A Comparative Analysis of Driver, Vehicle & Purpose Characteristics for Household & Freight Travel," School of Economics and Finance Discussion Papers and Working Papers Series 117, School of Economics and Finance, Queensland University of Technology.

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