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Rating:Odd Lots, January 10, 2000 Not Rated 3.0 Email Routing List Email & Route  Print Print
Monday, January 10, 2000

Odd Lots, January 10, 2000

Reported by Paul Braverman

Bond pleads not guilty
From The Wall Street Journal
Alan Bond, the prominent fund manager accused of taking more than $6 million in kickbacks from brokerage firms, pleaded not guilty to federal fraud charges. The prominent fund manager is president of Albriond Capital Management and manages more than $600 million of pension and investment funds for about 25 clients. He is also a regular on "Wall Street Week With Louis Rukeyser." The Securities and Exchange Commission has charged that Mr. Bond used the money to pay for a lavish lifestyle, including 75 cars and a beachfront Florida condominium. Those charges carry a maximum sentence on each count of five years in jail and a $250,000 fine. Bail was set at $1 million.

Funny business with performance rankings?
From The Wall Street Journal
A new study by the University of Pennsylvania's Wharton School reports that mutual funds tend to beat the market on the last trading day of each quarter and trail it on the first trading day of the succeeding quarter. The phenomenon is especially noticeable among top-performing funds.

The trend may be caused by fund managers who try to boost their quarterly performance rankings by rapidly buying certain stocks they already hold. Such rapid buying can drive up the value of those stocks and, in turn, the value of the fund manager's portfolio.

Fund managers are barred by federal securities regulations from artificially driving up a stock's price, but intent is very difficult to prove. Many fund managers agree that something smells funny.

If you can't do, teach
From The New York Times
Throughout the 1970s and '80s, finance professors argued that it was futile for fund managers to try to beat the market. According to the conventional wisdom at the time, it was impossible because all available information was already priced into the market. Now those professors have changed their tune, finding many exceptions to that rule. But they continue to criticize the fund industry on the grounds that if it's possible to beat the market, more fund managers should be doing it.

But the managers are fighting back with a new study that shows that many of the academics' methodologies are statistically flawed. Specifically, they are troubled by a "hindsight bias," which occurs when academics judge the decisions a fund manager made yesterday by the standards governing the market today.

 

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