Publication Type
PhD Dissertation
Version
publishedVersion
Publication Date
6-2019
Abstract
This dissertation consists of three papers in mutual fund governance or market microstructure that analyze the causal effect of board independence on mutual fund performance or the trading behavior of institutional trading and informed trading.
Chapter I studies how board independence affects fund performance, in relation to investment experience of independent directors. Using the SEC amendment in 2001 as an exogenous shock, I find that board independence does not improve or damage fund performance on average. When a fund board has independent directors with investment experience, however, it boosts fund performance. I also find that a fund manager is less constrained and the management fee on a contract is more aligned with fund performance under such a fund board. My findings suggest that board independence is not always beneficial to mutual fund shareholders, but its effectiveness varies depending on independent directors' investment experience.
Chapter II estimates daily aggregate order flow of individual stocks from all institutional investors as well as for hedge funds and other institutions separately. This study is coauthored with my advisor, Prof. Jianfeng Hu. We achieve this by extrapolating the relation between quarterly institutional ownership in 13F filings, aggregate market order imbalance in TAQ, and a representative group of institutional investors' transaction data. We find that the estimated institutional order imbalance positively predicts stock return on the next day and outperforms other institutional order flow estimates. The institutional order flow from hedge funds creates smaller contemporaneous price pressure and generates greater and more persistent price impact than the order flow from all other institutions. We also find that hedge funds trade on well-known anomalies while the other institutions do not. Our findings suggest that the superior trading skills of institutional investors can be largely attributed to hedge funds.
Lastly, I propose a simple measure of informed trading based on the Kyle (1985) model in Chapter III. This study is also coauthored with my advisor, Prof. Jianfeng Hu. We first calculate implied order imbalance (IOI) as contemporaneous stock returns divided by low-frequency illiquidity measures. The implied informed trading (IIT) is the residual of IOI regressed on its components (returns and illiquidity). We find that IIT positively predicts short-term future stock returns without subsequent reversals in the cross-section between 1927 and 2016. This predictability is robust in subperiods, and strengthens in stocks with high information asymmetry and before corporate events. The predictability survives existing measures of informed trading including short selling activities, order imbalance, and institutional trading in recent periods. Finally, IIT has the same predictive ability in G10 equity markets.
Keywords
Institutional management, Institutional trading, Mutual fund governance, SEC amendment of 2001, Informed trading
Degree Awarded
PhD in Business (Finance)
Discipline
Finance | Finance and Financial Management
Supervisor(s)
HU, Jianfeng
First Page
1
Last Page
141
Publisher
Singapore Management University
City or Country
Singapore
Citation
HA, Jingi.
Institutional management and institutional trading. (2019). 1-141.
Available at: https://ink.library.smu.edu.sg/etd_coll/260
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.