By Jacob Epstein
This paper explores the relationship between active mutual fund performance and market dispersion from January 1990 to December 2018. I find a significant positive relationship between dispersion and 4-factor alpha overall, providing some evidence of managerial skill. There are large differences in this relationship by decade and fund selectivity. The results suggest active mutual funds were able to take advantage of stock-picking opportunities during the 1990s and 2000s, particularly the most active subset of funds. However, I find a significant negative relationship between dispersion and alpha for funds in the 2010s, indicating this relationship has changed over time. I discuss several possible explanations for this reversal, which could present interesting avenues for further research.
Advisors: Professor Emma Rasiel | JEL Codes: G1, G12, G23
By Matthew J. Farrell
Do hedge funds earn statistically significant premia on common factor trading strategies after trading costs are accounted for? Furthermore, what is the gap between what a hedge fund would earn and the paper portfolios that they hold? I answer this question by using the latest cutting-edge methodology to estimate trading costs for major financial market anomalies. This methodology uses the familiar asset-pricing Fama-MacBeth procedure to compare the on-paper compensation to factor exposures with those earned by hedge funds. I find that the typical hedge fund does not earn profits to value or momentum, and and low returns to size.
Advisor: Professor Brian Weller | JEL Codes: G12; G14; G23;
By Hong Zhu
M-PESA, the hugely popular mobile money system in Kenya, has been celebrated for its potential to “bank the unbanked” and increase access to financial services. This paper provides evidence to support this idea and explores mechanisms through which this might be the case. It specifically looks at the savings products held by individuals and how this changes in relation to M-PESA use. It then constructs an index for measuring the extent to which individuals are integrated into the formal financial sector. This paper argues that M-PESA’s effect on financial inclusion is a growing phenomenon, which suggests that keeping pace with the rapid evolutions of this mobile money system should be a high priority for researchers. As this paper elucidates, M-PESA has become notably more integrated with the formal financial sector in 2013 as compared to 2009, which holds implications for user behavior.
Advisor: Michelle Connolly, Xiao Yu Wang | JEL Codes: D14, E42, G21, G23, O1, O17, O16, O33 | Tagged: Financial Inclusion, Mobile Money, Savings,Technology