The Efficient Market Hypothesis holds that it is not possible to 'beat the market' and that a passive investment strategy is optimal. Traditionally investors have been able to do this by investing in index funds replicating an index, but the emergence of exchange traded funds (ETFs) has afforded investors with an alternative passive investment strategy. This paper employs several measures of tracking error to test the relative tracking ability of index funds and ETFs which track the FTSE/JSE Top 40 index. We find that ETF's are superior tracking instruments, although there is evidence to suggest that the performance of index funds has improved over the most recent three-year period.
Hedge funds have the most sophisticated risk management practices; however, they also appear to have a short lifetime relative to other managed funds. In this study we investigate the failure probabilities of hedge funds - particularly the failures due to financial distress. We forecast the failure probabilities of hedge funds using both a proportional hazard model and a logistic model. By utilising a signal detection model and a relative operating characteristic curve as the prediction accuracy metrics, we found that both models have predictive power in the out-of-sample test. The proportional hazard model, in particular, has stronger predictive power, on average.
This paper examines the effects of government control structure on the allocation of bank credit to government-owned firms in China. It particularly examines the extent to which differences in institutional environments across the diverse regions of China affect the nexus between government control structure and levels of credit allocation. The analysis indicates that local governments pursue bank credit more aggressively for the firms they control than do higher ranked government units. Furthermore, the evidence indicates that government units are more disposed to pursue bank credits for firms which they control through state asset management bureaus than for firms which they control via state-owned entities. Importantly, these outcomes are less important in regions characterised by a good institutional environment than in those characterised by a poor institutional environment. Therefore, to minimise the need for government intervention in credit allocation to firms, regional governments should seek to establish quality institutional infrastructure.