Post by Sapphire Capital on Dec 15, 2008 22:06:15 GMT 4
Assessing the Operational Risk of Investment Funds
Stephen J. Brown
NYU Stern School of Business
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
Bing Liang
University of Massachusetts at Amherst - Department of Finance & Operations Management
Christopher Schwarz
University of California at Irvine
August 15, 2008
Abstract:
Over the last decade, several events, including the 2003 late-trading and market-timing mutual fund scandal, have demonstrated investment funds have significant levels of operational risk. While the BASEL II accord requires banks to quantify potential operational risk losses, investment fund regulators have instead required additional disclosure. Little research, however, has been performed evaluating the usefulness of regulatory disclosure in predicting and protecting investors from large operational risk events.
In this study, we will use a long time series of previously unexamined historical Form ADV filings to identify what disclosure information is useful to investors. By linking this data to mutual fund companies, we can examine what current conflicts of interest and regulatory issues predict future operational losses for investors. We will also use this information to form a univariate measure computed using standard mutual fund operating data that will inform investors about the mutual fund operational risk.
Ultimately, our research will have important implications for both investment fund investors and regulators. By determining what disclosure information is most useful, investors can focus on those variables to protect themselves from future problems, while regulators can improve the cost-benefit ratio of future disclosure requirements.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1230200_code1069.pdf?abstractid=1230200&mirid=1
Stephen J. Brown
NYU Stern School of Business
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
Bing Liang
University of Massachusetts at Amherst - Department of Finance & Operations Management
Christopher Schwarz
University of California at Irvine
August 15, 2008
Abstract:
Over the last decade, several events, including the 2003 late-trading and market-timing mutual fund scandal, have demonstrated investment funds have significant levels of operational risk. While the BASEL II accord requires banks to quantify potential operational risk losses, investment fund regulators have instead required additional disclosure. Little research, however, has been performed evaluating the usefulness of regulatory disclosure in predicting and protecting investors from large operational risk events.
In this study, we will use a long time series of previously unexamined historical Form ADV filings to identify what disclosure information is useful to investors. By linking this data to mutual fund companies, we can examine what current conflicts of interest and regulatory issues predict future operational losses for investors. We will also use this information to form a univariate measure computed using standard mutual fund operating data that will inform investors about the mutual fund operational risk.
Ultimately, our research will have important implications for both investment fund investors and regulators. By determining what disclosure information is most useful, investors can focus on those variables to protect themselves from future problems, while regulators can improve the cost-benefit ratio of future disclosure requirements.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1230200_code1069.pdf?abstractid=1230200&mirid=1