International interest rates, exchange rates, and the stochastic structure of supply

Article Abstract:

In a dual-currency, flexible exchange rate model, both nominal and real foreign exchange premia depend on investor risk attitudes, consumption parameters, and the stochastic structure of currency and commodity supplies. When supplies are random, their joint correlation structure determines the sign of the premia. If the money supplies are identically distributed, then all foreign exchange premia, regardless of the currency of denomination, are zero. A positive correlation between the value of a country's currency and its nominal interest rate need not indicate real interest rate movements. Relative bond prices can be negatively correlated with the terms of trade. (Reprinted by permission of the publisher.)

Foreign exchange, Foreign exchange rates, Interest rates, International finance

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Mutual fund herding and the impact on stock prices

Article Abstract:

We analyze the trading activity of the mutual fund industry from 1975 through 1994 to determine whether funds "herd" whey they trade stocks and to investigate the impact of herding on stock prices. Although we find little herding by mutual funds in the average stock, we find much higher levels in trades of small stocks and in trading by growth-oriented funds. Stocks that herds buy outperform stocks that they sell by 4 percent during the following six months; this return difference is much more pronounced among small stocks. Our results are consistent with mutual fund herding speeding the price-adjustment process. (Reprinted by permission of the publisher.)

Investment Offices, Investment Companies, Open-End Investment Funds, Stocks, Investments, Stock prices, Mutual fund industry, Institutional investments

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Evaluating the performance of international mutual funds

Article Abstract:

In this paper, we examine the performance of a sample of fifteen US-based internationally diversified mutual funds between 1982 and 1988. Two performance measures are used, the Jensen measure and the positive period weighting measure proposed by Grinblatt and Titman. We find no evidence that the funds, either individually or as a whole, provide investors with performance that surpasses that of a broad, international equity index over this sample period. (Reprinted by permission of the publisher.)

Evaluation, Foreign investments, Mutual funds

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