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

Author

Listed:
  • 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.

Suggested Citation

  • Michael E. Drew & Jon D. Stanford & Madhu Veeraraghavan, 2001. "Testing The Incomplete Arbitrate Hypothesis: Evidence From Australian Wholesale Superannuation Funds," School of Economics and Finance Discussion Papers and Working Papers Series 099, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:099
    as

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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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    References listed on IDEAS

    as
    1. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119-119.
    2. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    3. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-698, June.
    4. Drew, Michael E. & Stanford, Jon D., 2001. "The Impact of Fund Attrition on Superannuation Returns," Economic Analysis and Policy, Elsevier, vol. 31(1), pages 25-32, March.
    5. 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 1039-1055, July.
    6. 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.
    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 237-273.
    8. 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.
    9. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    10. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    11. 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 573-585, May.
    12. 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, 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.

    More about this item

    Keywords

    Superannuation funds; Australia;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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