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 Mutual Funds
and Exchange-Traded Funds
FINANCIAL MARKETS AND INVESTMENTS SERIES
H. Kent Baker and Greg Filbeck, Series Editors

Portfolio Theory and Management

Edited by H. Kent Baker and Greg Filbeck

Public Real Estate Markets and Investments

Edited by H. Kent Baker and Peter Chinloy

Private Real Estate Markets and Investments

Edited by H. Kent Baker and Peter Chinloy

Investment Risk Management

Edited by H. Kent Baker and Greg Filbeck

Private Equity: Opportunities and Risks

Edited by H. Kent Baker, Greg Filbeck, and Halil Kiymaz

Mutual Funds and Exchange-Traded Funds: Building Blocks to Wealth

Edited by H. Kent Baker, Greg Filbeck, and Halil Kiymaz
 Mutual Funds
and Exchange-Traded
Funds
BUILDING BLOCK S TO WEALTH

EDITED BY H. KENT BAKER

GREG FILBECK

and

HALIL KIYMAZ

3
3
Oxford University Press is a department of the University of Oxford.
It furthers the University’s objective of excellence in research, scholarship,
and education by publishing worldwide. Oxford is a registered trade mark
of Oxford University Press in the UK and in certain other countries

Published in the United States of America by

Oxford University Press
198 Madison Avenue, New York, NY 10016,
United States of America

© Oxford University Press 2016

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, without the prior
permission in writing of Oxford University Press, or as expressly permitted by law,
by license, or under terms agreed with the appropriate reproduction rights organization.
Inquiries concerning reproduction outside the scope of the above should be sent to the Rights
Department, Oxford University Press, at the address above.

You must not circulate this work in any other form

and you must impose this same condition on any acquirer

Cataloging-in-Publication Data is on file at the Library of Congress.

9780190207434

9 8 7 6 5 4 3 2 1

Printed in the United States of America on acid-free paper

 Contents

List of Figures ix
List of Tables xi
Acknowledgments xiii
About the Editors xv
About the Contributors xvii
Abbreviations xxviii

Par t One BACKGROUND

1. Mutual Funds and Related Investment Vehicles: An Overview 3
H . K E N T B A K E R, G R E G F I L B E C K, A N D H A L I L K I Y M A Z

2. The Economics of Mutual Funds: Rewards and Risks 21

DAV I D M . S M I T H

3. The Role of Mutual Funds in Retirement and Education Savings 44

SARAH A. HOLDEN

4. The Structure and Regulation of Mutual Funds 65

ROBERT GROHOWSKI AND SEAN COLLINS

Par t Two MUTUAL FUNDS AND OTHER FUND T YPES

5. Open-End Funds 87
CONRAD S. CICCOTELLO

6. Target-Date Funds and Other Funds-of-Funds 103

A L I S TA I R B Y R N E A N D T R E V O R O L I V E R

v
vi CONTENTS

7. Closed-End Funds 119

Z . J AY WA N G

8. Non-U.S. Closed-End Funds 137

D I M I T R I S A N D R I O S O P O U L O S, M A R Y F L E T C H E R, A N D A N D R E W M A R S H A L L

9. Exchange-Traded Funds 153

E H S A N N I K B A K H T, K E I T H PA R E T I, A N D A N D R E W C . S P I E L E R

10. Leveraged and Inverse Exchange-Traded Funds 169

B E N J A M I N A G U I L A R, M I C H A E L B I A N C O, C H R I S T O P H E R M I L L I K E N, A N D A N D R E W C . S P I E L E R

CLASSIFICATION OF FUNDS BY PRINCIPAL

Par t Three
INVESTMENTS
11. Money Market Mutual Funds 195
A N N A A G A P O VA

12. Bond Mutual Funds 215

SANDEEP SINGH

13. Stock Mutual Funds 233

GRADY PERDUE

14. Socially Responsible Mutual Funds 248

E D D Y J U N A R S I N, E N R I C O L I B E R T, A N D F R E N D Y

15. Mutual Funds: Management Styles, Social Responsibility,

Performance, and Efficiency 268
TA M A S B A R K O A N D L U C R E N N E B O O G

Par t Four ASSET ALLOCATION AND PERFORMANCE

OF MUTUAL FUNDS
16. Strategic Asset Allocation and Rebalancing 291
L AURA ANDREU AND JOS É LUIS SARTO

17. Building and Monitoring Mutual Fund Portfolios 307

L A R R Y J . P R AT H E R, H A N-S H E N G C H E N, A N D Y I N G-C H O U L I N
 CONTENTS vii

18. Analyzing Mutual Funds 329

B R U C E A . C O S TA A N D K E I T H J A K O B

19. Predicting Mutual Fund Performance 349

M AT T H E W R . M O R E Y

20. Evaluating Mutual Fund Performance within the Stochastic Discount

Framework 364
J O N AT H A N F L E T C H E R

21. Mutual Fund Risk 380

R O B E R T O S AV O N A, O R E S T E A U L E TA, A N D F I L I P P O S T E FA N I N I

Par t Five FUND STRUCTURE

22. Organization, Structure, and Services of Mutual Funds 399
MARK POTTER

23. Selected Topics in Mutual Fund Distribution 417

JOHN A. HASLEM

24. Mutual Fund Disclosure and Related Fund Investor Protection

Features 432
JOSEPH A. FRANCO

25. New Developments in Exchange-Traded Funds 449

O J WA N G’ G E O R G E O M O N D I

26. Ethical Standards in Mutual Funds 470

R O S A A DA M O

Par t Six MUTUAL FUNDS WORLDWIDE

27. Mutual Funds in Emerging and Developing Markets 487
PA R V E Z A H M E D

28. Performance of Global Mutual Funds 507

TA R I K B A Z G O U R, L A U R E N T B O D S O N, A N D DA N I E L L E S O U G N É
viii CONTENTS

29. Performance of Exchange-Traded Funds 524

PA N A G I O T I S S C H I Z A S

30. Issues, Trends, and Future Developments in the Mutual Fund

Industry 546
HUNTER M. HOLZHAUER

Discussion Questions and Answers 561

Index 599
 List of Figures

2.1 Number of U.S. Mutual Funds and Total Assets Under Management 24
2.2 Assets Under Management for Various Types of U.S. Mutual Funds 25
3.1 Growth of U.S. Retirement Assets 46
3.2 Share of Near-Retiree Households with Retirement Accumulations 47
3.3 Degree of Participant Direction of 401(k) Account Investments 49
3.4 Relationship of Asset Allocation to Equities among 401(k) Plan
Participants 51
3.5 Traditional Individual Retirement Accounts Held at Financial Services
Firms 53
3.6 Mutual Funds and Retirement Accounts 56
3.7 Expense Ratios over Time 59
3.8 401(k) Equity Mutual Fund Assets and Expense Ratios 60
3.9 Changes in Section 529 Plan Assets over Time 61
4.1 Net Assets of Registered Investment Companies, by Type 68
4.2 Ownership of Mutual Funds by Household Income Category 70
4.3 The Most Popular Forms of Mutual Fund Organization 72
4.4 Organization of a Mutual Fund 74
4.5 Leverage Ratios of Banks and Mutual Funds 78
6.1 Equity Allocations of Major U.S. Target-Date Providers 109
6.2 Landing Point Date of U.S. Target-Date Funds 109
6.3 Glidepath for NEST 2058 Target-Date Fund 110
9.1 Total Net Assets and Number of Exchange-Traded Funds, 2002 to 2013 154
9.2 Net Issuance of Exchange-Traded Fund Shares by Investment Classification in
Billions of Dollars, 2011 to 2013 158
10.1 Global Growth of Leveraged and Inverse Exchange-Traded Funds 172
11.1 The Growth of Total Net Assets for Money Market Mutual Funds, 1975 to
2013 197
11.2 Mutual Funds Market Composition, 2000 to 2013 197
11.3 Mutual Fund Market Share, 2000 to 2013 198
11.4 The Total Net Assets of Money Market Mutual Funds by Investment Category,
1984 to 2013 201
11.5 Retail versus Institutional Money Market Mutual Funds, 1996 to 2013 207
11.6 Percent of Businesses’ Short-Term Assets in Money Market Mutual Funds,
2000 to 2013 207
ix
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x LIST OF FIGURES

11.7 Total Net Assets of Retail and Institutional Money Market Mutual Funds by
Investment Category, 1996 to 2013 208
14.1 The Boston Consulting Group (Portfolio Growth-Share) Matrix 261
15.1 Number of Active Mutual Funds and Their Total Nets Assets by Region 269
15.2 Net New Cash Flows to U.S. Mutual Funds 271
15.3 Net New Flow to and Market Share of U.S. Indexed Mutual Funds 272
15.4 Cumulative Flows to U.S. Domestic Equity Mutual Funds and Exchange-
Traded Funds 273
16.1 Annual Average Return of Eurozone Equity Funds and the Euro Stoxx 50 301
17.1 Summary Statistics for Selected Funds 319
17.2 An Arbitrary Portfolio 320
17.3 Using Solver to Create an Optimal Portfolio without Short Sales 320
18.1 Morningstar Star Rating and Style Box 345
21.1 Volatility and Diversification 390
22.1 Comparison of Other Fund and Exchange-Traded Fund Characteristics during
2013 409
22.2 Diversification Potential of Mutual Funds and Exchange-Traded Funds during
2013 409
28.1 Classification Tree of Performance Measures 510
28.2 Efficient Frontier for Internationally Diversified Portfolios 512
29.1 The Box Plot of Euro Stoxx 50 ETF 527
29.2 Daily Trading Volume Exchange-Traded Fund MSCI Hong-Kong 528
29.3 Closing Market Price/Net Asset Value 532
29.4 Quantile-to-Quantile Distribution 534
 List of Tables

2.1 Size of the Mutual Fund Industry and Expenses Charged Worldwide 22
2.2 Assets Under Management and Market Share of Mutual Funds for the Top
10 U.S. Advisory Firms 25
2.3 Prevalence and Levels of Loads and Fees for Mutual Funds 28
2.4 Common Components of the Expense Ratio for Mutual Funds 29
2.5 Breakpoints and Resulting Fees and Loads for Mutual Funds 30
2.6 Morningstar Grades for Stewardship, Corporate Culture, and Board Quality
among Fund Families 39
3.1 401(k) Asset Allocation and Participant Age 50
3.2 Types of Individual Retirement Accounts 52
3.3 Relationship between Traditional IRA Asset Allocation and Investor Age 54
3.4 Source of the First Mutual Fund Purchase by Period 55
3.5 Mutual-Fund-Owning Households and Their Goals 55
3.6 Types of Mutual Funds Used by Retirement Investors ($ billions) 57
3.7 Some Mutual-Fund-Owning Households Focus on Education Savings 62
4.1 Households’ Assets in Long-Term Mutual Funds and Money Market
Funds 70
4.2 Stock Market Returns Compared to Yields on Liquid Bank Deposits 71
6.1 Examples of Target-Date Fund Customizations 114
6.2 Outcomes of Dynamic Lifecycle Strategies 115
7.1 Year-End Total Assets and Total Number of Closed-End Funds, 2003
to 2013 122
7.2 Asset Allocation of Closed-End Funds, 2003 and 2013 122
8.1 Closed-End Fund Discounts and Premiums 138
8.2 Comparison of U.K. and U.S. Closed-End Fund Markets 139
9.1 U.S.-Based Exchange-Traded Funds Issuers 155
9.2 Largest 10 Exchange-Traded Funds by Assets as of September 2014 159
10.1 Summary of U.S. Listed Leveraged and Inverse Exchange-Traded Funds by
Asset Class 170
10.2 Overview of Leveraged and Inverse Exchange-Traded Fund Providers 172
10.3 Index Return versus Performance of 3x Leveraged Exchange-Traded
Funds 175

xi
xii L I S T O F TA B L E S

10.4 Two-Week and One-Month Return Patterns of a 3x Leveraged Exchange-

Traded Fund 177
10.5 One-Year Return Patterns of a 3x Leveraged Exchange-Traded Funds 178
10.6 Historical Return versus a Multiple 180
10.7 Leverage Ratio of 3x Monthly Rebalanced Exchange-Traded Fund 182
11.1 Asset Composition of Taxable Prime Money Market Mutual Funds as a Per-
centage of Total Net Assets (Year-End), 1984 to 2013 202
11.2 Asset Composition of Taxable Government Money Market Mutual Funds as a
Percentage of Total Net Assets (Year-End), 1984 to 2013 205
12.1 U.S. Debt Market 220
14.1 Comparison among Socially Responsible Investment Strategies 255
15.1 Characteristics of Global Mutual Funds and Their Holdings 277
15.2 Empirical Findings of Studies on Socially Responsible Investment Mutual
Funds 279
16.1 Annual Descriptive Statistics for Spanish Mutual Funds 299
16.2 Benchmark Correlations 300
16.3 Summary Statistics of the Strategic Asset Allocation of Spanish Mutual Funds
Investing in Eurozone Equity 302
16.4 Comparison of the Equity Investment during Different Periods 303
17.1 Summary Statistics of Realized Returns, 1926 to 2013 316
17.2 Correlations of Historical Annual Returns, 1926 to 2013 317
18.1 Monthly Return Data and Risk Factors 339
18.2 Return and Risk Metrics 341
18.3 The CAPM and Treynor Ratio 342
18.4 The Carhart Model Regression 343
21.1 An Example of the Risk Decomposition of a U.S. Equity Mutual Fund 392
22.1 Wells Fargo Advantage Growth Fund Structural Characteristics 402
22.2 Brokerage Channel Availability for Wells Fargo Advantage Growth Fund 403
22.3 Approximate Tax-Efficiency Ranking for Major Asset Classes 412
25.1 Total Return Swap 454
25.2 Exchange-Traded Fund Synthetic Replication Schemes 456
25.3 New Exchange-Traded Fund Products 461
25.4 Top 10 Exchange-Traded Fund Families in 2013 by Assets Under
Management 465
27.1 Mutual Fund Performance in Classical Studies 493
27.2 Number and Size of Mutual Funds by Country 495
27.3 Fund Performance in Emerging Markets 496
27.4 Performance Measures of Mutual Funds across Varying Periods 498
27.5 Performance of Emerging Market Mutual Funds Ranked by Past Returns 499
27.6 Diversification Benefits from Adding Emerging Market Bond Funds 500
27.7 Summary Statistics of Emerging Market Hedge Funds 502
29.1 Annual Operating Expenses 530
29.2 Realized Excess Returns 537
29.3 Single Index Model 540
29.4 Sortino and Omega Ratios 542
 Acknowledgments

“In the end, what makes a book valuable is not the paper it’s printed
on, but the thousands of hours of work by dozens of people who are
dedicated to creating the best possible reading experience for you.”
—John Green

Mutual Funds and Exchange-Traded Funds: Building Blocks to Wealth represents the
work of many people all with the singular purpose of creating the most informative book
possible on the subject. The list of contributors is long but we want to single out the fol-
lowing, all of whom merit special recognition. The reviewers of our initial book proposal
offered useful suggestions and guidance for improving the book. The contributing au-
thors provided multiple revisions of their work resulting in high quality and in-depth
chapters. Our partners at Oxford University Press all contributed substantially to the
publication of this book especially Scott Parris (Editor) and Cathryn Vaulman (Assis-
tant Editor). Other important contributors included Cherline Daniel (Senior Project
Manager), Lynn Childress (Copyeditor), and Claudie Peterfreund (Indexer). We also
appreciate the support of our respective institutions—the Kogod School of Business
at American University, the Black School of Business at Penn State Behrend, and the
Crummer Graduate School of Business at Rollins College. Finally, our families have
been highly supportive throughout the project. We dedicate this book to our families:
Linda and Rory Baker; Janis, Aaron, Kyle, and Grant Filbeck; and Nilgun and Tunc
Kiymaz.

xiii
 About the Editors

H. Kent Baker CFA, CMA, is University Professor of Finance in the Kogod School of
Business at American University. Professor Baker is an author or editor of 25 books
including Investment Risk Management, Investor Behavior: The Psychology of Finan-
cial Planning and Investing, Market Microstructure of Emerging and Developed Markets,
Behavioral Finance: Investors, Corporations, and Markets, Portfolio Theory and Man-
agement, and Survey Research in Corporate Finance. As one of the most prolific finance
academics, he has published more than 160 refereed articles in such journals as
the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Man-
agement, Financial Analysts Journal, and Journal of Portfolio Management. He has
consulting and training experience with more than 100 organizations. Professor
Baker holds a BSBA from Georgetown University; M.Ed., MBA, and DBA degrees
from the University of Maryland; and an MA, MS, and two PhDs from American
University.
Greg Filbeck CFA, FRM, and CAIA, holds the Samuel P. Black III Professor of Fi-
nance and Risk Management at Penn State Erie, the Behrend College, where he
serves as the Associate Director of the Black School of Business and Department
Chair for Finance and Economics. He formerly was Senior Vice-President of Ka-
plan Schweser and held academic appointments at Miami University (Ohio) and the
University of Toledo, where he was the Associate Director of the Center for Fam-
ily Business. Professor Filbeck is an author or editor of 7 books and has published
more than 80 refereed academic journal articles that have appeared in journals such
as Financial Analysts Journal, Financial Review, and Journal of Business, Finance, and
Accounting. He conducts consulting and training worldwide for candidates for the
Chartered Financial Analyst (CFA), Financial Risk Manager (FRM™), and Char-
tered Alternative Investment Adviser (CAIA®) designations. Professor Filbeck holds
a BS from Murray State University, an MS from Penn State University, and a DBA
from the University of Kentucky.
Halil Kiymaz CFA, is Bank of America Professor of Finance in the Crummer Grad-
uate School of Business at Rollins College. He held positions at Bilkent University,
University of Houston–Clear Lake, IMADEC University, East Chinese University
of Science and Technology, Copenhagen Business, Ada University, and Kadir Has
University. Professor Kiymaz has published more than 75 articles in scholarly and
practitioner journals and co-edited 4 books. His research has appeared in the Journal

xv
xvi ABOUT THE EDITORS

of Banking and Finance, Financial Review, Global Finance Journal, Journal of Applied
Finance, Journal of Economics and Finance, Review of Financial Economics, Quarterly
Journal of Business and Economics, among others. He also serves on the editorial
board of three journals and is the area editor of the International Journal of Emer-
ging Markets. Professor Kiymaz has consulting and training experience with various
governmental and public organizations such as the Central Bank of Turkey, Bankers
Association, and Stalla. He received a BS from the Uludağ University and an MBA,
MA, and PhD from the University of New Orleans.
 About the Contributors

Rosa Adamo is Professor of Banking and Finance at the University of Calabria in Italy
where she teaches ethical finance, financial intermediaries, and corporate banking.
She is also Vice-Director of the School of “Dottorato” in Economic and Business
Sciences and Vice-President of the Degree Course in Law at the University of Ca-
labria. She is President of the CCT A017—Economic and Business Disciplines at
the University of Calabria. Professor Adamo is member of the Italian Association of
Scholars of Economics and Management of Financial Institutions and Markets (AD-
EIMF). In 2010, she received the Bernardino Telesio Award, Successful Calabrians.
She is author of various articles and monographs on banking regulation and control,
savers’ protection, corporate finance and banking, financial inclusion, and ethical fi-
nance. She graduated with first-class honors in economic and social sciences from
the University of Calabria. She also holds post-graduate degrees in finance from both
the University of Naples and University of Florence.
Anna Agapova is an Associate Professor of Finance at Florida Atlantic University.
Her primary research interests are investments, mutual funds and ETFs, financial
markets, and corporate finance. Her work has been published in such journals as
Financial Management, Journal of Financial Markets, Financial Review, Journal of Port-
folio Management, Journal of Applied Finance, and Journal of Index Investing. She has
received an outstanding paper award from the Eastern Finance Association and was
a finalist in the Whitebox selected research search for the best financial research
paper. She teaches graduate and undergraduate courses in investments and corpo-
rate finance. Previously, she taught at Georgia State University and Karaganda State
Industrial University, Kazakhstan. She holds a BA in marketing from Karaganda
State University and an MA in economics and a PhD in finance from Georgia State
University.
Benjamin Aguilar CFA is a senior associate and leader of the mergers and acquis-
itions practice at Cathedral Consulting Group, LLC, which is a management and
operational consulting firm that specializes in best business practices for small and
medium private enterprises. As a senior associate, Mr. Aguilar is responsible for
leading Cathedral’s M&A clients in buy-side and sell-side transactions, company
turnarounds, and debt/equity financings. He holds a BA in economics from the
King’s College.

xvii
xviii ABOUT THE CONTRIBUTORS

Parvez Ahmed is a Professor of Finance at the Coggin College of Business, University

of North Florida and serves as the Director of the Center for Sustainable Business
Practices. He was named a U.S. Fulbright Scholar in 2009. Professor Ahmed pre-
viously taught at Penn State University–Harrisburg and the University of North
Carolina at Charlotte where he was the founding faculty advisor for the student-
managed investment fund. He has published in such journals as the Journal of
Portfolio Management, Financial Management, Journal of Banking and Finance, Journal
of Investing, Journal of Wealth Management, and Financial Review. He recently pub-
lished a book titled Mutual Funds: Fifty Years of Research Findings. Professor Ahmed
holds an MBA from Temple University and a PhD in finance from the University of
Texas at Arlington.
Laura Andreu is an Associate Professor of Finance at the Economy and Business
School of the University of Zaragoza and has taught courses in financial economics
at that school since 2007. She was a visiting scholar at the Centre for Finance and In-
vestment at Exeter University, Erasmus School of Economics, Finance Department
at the University of Cologne, and Victoria University. Her research interests include
asset management, behavioral finance, and collective investment portfolios such as
mutual funds and pension funds. She has published in such journals as the Journal of
Financial Services Research, Quantitative Finance, and Review of Quantitative Finance
and Accounting. Professor Andreu received a degree in business administration and
both an MA in accounting and finance and a PhD in finance from the University of
Zaragoza.
Dimitris Andriosopoulos is a Senior Lecturer in Accounting and Finance at
the University of Strathclyde. His expertise lies in the areas of corporate finance,
closed-end funds, corporate governance, investments, mergers and acquisitions, and
banking. He has published in such journals as the Journal of Banking and Finance,
Journal of Empirical Finance, and European Journal of Finance. Professor Andrios-
opoulos is also a financial consultant and commodities broker. He holds an MBA and
MSc in accounting from Suffolk University and a PhD in finance from Cass Business
School.
Oreste Auleta is the Head of Wrapping and Product Management in Eurizon Cap-
ital SGR. After being in the economic consultancy sector in London, he entered
the asset management industry where he held positions as head of third parties’
fund selection and of multi-brand products’ management, head of management of
asset allocation global products, and head of multi-asset products’ management.
Mr. Oreste joined Eurizon Capital in 2010, where he was initially appointed Head
of Asset Allocation and Manager Selection. He has served as Head of the Wrapping
and Product Management area since 2011. He received a degree in business from La
Sapienza University in Rome and an MS in quantitative economics from CORIPE
Piemonte and an MS in economics from Birkbeck College in London.
Tamas Barko is a researcher and doctoral student at Tilburg University’s CentER
Graduate School and a research fellow at the Tilburg Sustainability Center. His re-
search interests are corporate social responsibility, sustainable investments, investor
activism, and corporate governance. He received a BA in business administration
from the University of Pecs in Hungary and an MSc in finance from Tilburg
University.
 ABOUT THE CONTRIBUTORS xix

Tarik Bazgour is a Research Assistant and PhD candidate in finance at HEC

Management School of the University of Liège. His dissertation focuses on asset al-
location and performance evaluation under different market regimes. His interests
include portfolio management, conditional performance evaluation, and market liq-
uidity measurement. Mr. Bazgour has presented his research at several international
conferences including the FMA European and Asian conferences and is currently
working on the conditional market and liquidity timing skills of mutual fund man-
agers during low and high volatility periods. He is an industrial engineer from the
Mohammadia School of Engineering (Morocco) and holds an Advanced Master’s
degree in finance from the HEC Management School of the University of Liège,
magna cum laude.
Michael Bianco is a finance industry professional and an investor relations consult-
ant to publicly traded corporations. He works at NASDAQ in the firm’s Corporate
Solutions division as a specialist. Thomson Reuters acquired the division in 2013.
Before joining Thomson Financial, Mr. Bianco was an investment advisor to high
net worth individuals at a boutique brokerage firm. He has a BS in comprehensive
science with minors in mathematics and business administration from Villanova
University. He passed Level III of the CFA program and is awaiting the official
awarding of the CFA charter.
Laurent Bodson is Affiliate Professor at HEC Management School of the University
of Liège. Professor Bodson teaches courses in financial modeling and information
technology as well as fixed-income securities and also presents executive seminars.
He is also head of solutions of Gambit Financial Solutions S.A., a spin-off company
of HEC Management School of the University of Liège that produces sophisticated
software solutions for investor profiling, portfolio optimization, and risk manage-
ment. His areas of expertise include portfolio and risk management. Professor
Bodson has presented his research at many conferences and published in such journ-
als as the Journal of Empirical Finance and Journal of Financial Research. He holds a
PhD in finance from the University of Liège.
Alistair Byrne CFA, is Vice President and Senior Defined Contribution Strategist
at State Street Global Advisors in London. Dr. Byrne previously held senior invest-
ment roles at Towers Watson and AEGON UK, as well as academic positions at the
University of Strathclyde and the University of Edinburgh. He is a fellow at the Pen-
sions Institute at Cass Business School in London and an Honorary Professor at the
University of Edinburgh Business School. Dr. Byrne has published on defined con-
tribution investment issues in the Financial Analysts Journal and Journal of Portfolio
Management. He has a PhD in finance from the University of Strathclyde.
Han-Sheng Chen is an Assistant Professor at Southeastern Oklahoma State Uni-
versity. His research interests lie in the fields of investments and asset pricing,
specifically in market efficiency and behavioral finance, volatility, and option-related
issues. He has presented his research at various conferences. Professor Chen re-
ceived a BS in statistics and an MBA in finance in Taiwan and has a PhD in finance
from the University of Texas at Arlington.
Conrad S. Ciccotello is the Director of Wealth Management Programs in the Rob-
inson College of Business at Georgia State University and the Executive Director
of the Huebner Foundation. His research interests are in law and finance with an
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xx ABOUT THE CONTRIBUTORS

emphasis in financial intermediation and services. Professor Ciccotello is a Research

Fellow in the TIAA-CREF Institute. He has more than 50 publications including
articles in the Journal of Financial Economics, Journal of Law and Economics, Journal
of Financial and Quantitative Analysis, and Financial Analysts Journal. His research
has been cited in the Federal Register and entered into the record as Senate Banking
Committee testimony. He has also been quoted in numerous publications including
the Wall Street Journal, New York Times, and Washington Post. Professor Ciccotello
serves as an independent director and audit committee chair for the Tortoise Capi-
tal Advisors Funds and for Corenergy Infrastructure Trust. He has a JD from Suffolk
Law School and a PhD in finance from the Pennsylvania State University.
Sean Collins is Senior Director and Senior Economist with the Investment Company
Institute (ICI), with responsibility for studying issues related to mutual fund trends,
fees, and structure, and monitoring and analyzing a wide range of financial market
issues that may affect registered investment companies. He began his career at the
Federal Reserve Board in Washington, DC, spent five years as an economist with the
Reserve Bank of New Zealand, and has been at the ICI since 2000. He received a BA
in economics from Claremont McKenna College and a PhD in economics from the
University of California, Santa Barbara.
Bruce A. Costa is a Professor of Finance and the Chair of the Accounting and Finance
Department at the University of Montana. He served in the U.S. Navy for more
than 13 years including tours as a test pilot and assistant navigator aboard the USS
Saratoga during the Gulf War. His research focuses on the risk-adjusted returns
of actively managed portfolios. He has published in such journals as the Journal of
Applied Finance, Journal of Multinational Financial Management, Global Finance Jour-
nal, and Financial Services Review. Professor Costa has consulting experience with
many businesses involving both financial and aviation-related matters. He serves on
the Board of Directors for SG Long and Company, an investment advisory firm in
Missoula, Montana. Professor Costa has a BS in industrial engineering/operations
research from the University of Massachusetts–Amherst and a PhD in business
administration with an emphasis in finance from Florida State University.
Jonathan Fletcher is a Professor of Finance at the University of Strathclyde. His
research interests focus on issues in fund performance, asset pricing, and portfolio
choice. He has published in a wide range of academic journals including the Financial
Analysts Journal, Journal of Banking and Finance, Journal of Empirical Finance, Journal
of Financial Services Research, Journal of Financial Research, Journal of Business Finance
and Accounting among others. He is an Associate Editor of the Financial Review. Pro-
fessor Fletcher holds an MA in accounting and economics from the University of
Dundee and both an MSc and PhD in finance from the University of Strathclyde.
Mary Fletcher is a Lecturer in Accounting and Finance at the University of the
West of Scotland. She has published several articles on U.K. closed-end funds and
has presented her research at international conferences and symposiums. Her re-
search interests involve closed-end funds and capital controls in financial markets.
She holds an MSc and a PhD in finance from the University of Strathclyde.
Joseph A. Franco is Professor of Law at Suffolk University Law School in Boston. He
teaches courses in securities regulation, investment management regulation, mer-
gers and acquisitions, and corporations. His writing and research focus on issues
 ABOUT THE CONTRIBUTORS xxi

affecting securities markets and investment companies. Professor Franco previously

was an Assistant General Counsel with the U.S. Securities and Exchange Commis-
sion in Washington, DC, and practiced securities law in New York City. He is an
independent trustee for a small series of quantitative factor-based ETFs. Professor
Franco received a JD from Yale Law School, where he was a member of the Yale Law
Journal, and also holds an MA in economics from Yale University.
Frendy is a PhD candidate at Nagoya University Graduate School of Economics where
he received the Japanese Government Scholarship for Research Student (Postgradu-
ate) Program. He previously worked as an audit associate in KPMG Indonesia.
His research interests include corporate governance, audit quality, audit market
competition, and financial disclosure. He has presented papers at international ac-
ademic conferences and published in the Journal of Contemporary Accounting and
Economics and Gadjah Mada International Journal of Business. He participated in an
exchange student program in Hiroshima University of Economics and obtained a BS
in economics with major in accounting from Universitas Gadjah Mada.
Robert Grohowski is a General Counsel with the Investment Adviser Association.
Previously, he was Senior Counsel with the Investment Company Institute (ICI),
with a primary responsibility for a wide range of issues arising under the Investment
Company Act of 1940. Before joining the ICI in 1998, he was in private law practice
with Kilpatrick & Cody (now Kilpatrick Townsend) in Atlanta and then with Suth-
erland, Asbill, & Brennan in Washington, DC. He received a BA in foreign affairs and
a JD from University of Virginia, where he was a member for the editorial board for
the Virginia Journal of International Law.
John A. Haslem is Professor Emeritus of Finance in the Robert H. Smith School of
Business at the University of Maryland. He served as founding academic affairs dean
and founding chair of the finance department. Professor Haslem received the Pan-
hellenic Association’s “Outstanding Teacher Award” for his first of a kind mutual
funds course. He previously taught at the University of North Carolina and Uni-
versity of Wisconsin. His research has appeared in the Journal of Finance, Journal
of Business, Journal of Financial and Quantitative Analysis, and Journal of Money, and
Credit and Banking among others. He is an author and editor of six books includ-
ing Mutual Funds: Risk and Performance Analysis for Decision Making and Mutual
Funds: Portfolio Structures: Analysis, Management, and Stewardship. Professor Haslem
served as consultant to the U.S. Department of Justice, NASA Goddard Space Flight
Center, among others and currently serves on the board of judges of the William
F. Sharpe Indexing Achievement Awards. He received an MBA and PhD from the
University of North Carolina.
Sarah A. Holden is Senior Director of Retirement and Investor Research at the In-
vestment Company Institute (ICI). Ms. Holden conducts and oversees research on
the U.S. retirement market, retirement and tax policy, and investor demographics
and behavior. She is responsible for analysis of 401(k) plan participant activity using
data collected in a collaborative effort with the Employee Benefit Research Institute
(EBRI), known as the EBRI/ICI Participant-Directed Retirement Plan Data Collec-
tion Project. She also analyzes the role of mutual funds in the retirement marketplace
including defined contribution plan and IRA markets. She oversees the IRA Investor
Database™, which contains data on more than 15 million IRA investors and allows
xxii ABOUT THE CONTRIBUTORS

analysis of IRA investors’ contribution, rollover, conversion, and withdrawal activity,

and asset allocation. She is also responsible for managing household survey research
on a range of topics relevant to the fund industry and policy formation. Before join-
ing the ICI, Ms. Holden worked as a staff economist in the Flow of Funds Section
of the Research Division at the Federal Reserve Board. She graduated from Smith
College, cum laude, and holds a PhD in economics from the University of Michigan.
Hunter M. Holzhauer is an Assistant Professor of Finance at the University
of Tennessee–Chattanooga, where he teaches both graduate and undergraduate
classes including corporate finance, investments, and behavioral finance. Professor
Holzhauer has also taught at Penn State Erie, The Behrend College. His financial
industry experience includes positions as a credit analyst with Colonial Bank and a
financial planner and fixed-income portfolio manager with AmSouth Bank. His re-
search interests primarily focus on new and alternative investment strategies. He
received a BS in business administration and bio-psychology from Birmingham-
Southern College, an MBA from Mississippi State University, and a PhD from the
University of Alabama.
Keith Jakob is the Donald & Carol Jean Byrnes Professor of Finance at the Uni-
versity of Montana. His research interests are in dividends, market microstructure,
corporate finance, initial public offerings, international finance, and investment and
mutual fund performance. Professor Jakob has published in such journals as the Jour-
nal of Financial Economics, Financial Management, Journal of Financial Research, and
Journal of Empirical Finance. He has consulted for and helped run various businesses,
managed investment portfolios, and has acted as an expert witness on financial fraud.
He has a BS in chemistry, an MA degree in civil and environmental engineering, and
a PhD in finance from the University of Utah.
Eddy Junarsin is an Associate Professor of Finance at Universitas Gadjah Mada
Faculty of Economics and Business, Indonesia, and also a Visiting Professor at
Pforzheim University (Germany) and Arnhem Business School (Holland). His
research interests cover corporate finance, corporate governance, executive compen-
sation, and financial institutions. He has published in such journals as the Annals of
Economics and Finance (SSCI) and Gadjah Mada International Journal of Business
(Scopus), and is an ad hoc reviewer for Applied Economics, Applied Financial Eco-
nomics, and International Journal of Energy Sector Management. He is currently the
editor-in-chief of the Journal of Indonesian Economy and Business. Professor Junarsin
received a PhD in finance from Southern Illinois University Carbondale.
Enrico Libert is a research assistant at Universitas Gadjah Mada, Indonesia, and
also an entrepreneur. He previously worked in quality assurance in Gameloft In-
donesia. His research interests in finance include stock exchanges, project finance,
public–private partnerships, sovereign wealth funds, mutual funds, and international
finance. His interests also include search engine marketing and optimization, social
media marketing, business modeling, and business plans. He received both a BS in
science with a concentration in electronics and computer science and an MBA with
a concentration in finance from Universitas Gadjah Mada.
Ying-Chou Lin is an Assistant Professor of Finance in the John Massey School of
Business at Southeastern Oklahoma State University. He previously taught at the
Missouri University of Science and Technology. Professor Lin’s primary research
 ABOUT THE CONTRIBUTORS xxiii

interests include corporate finance, international finance, investments, accounting

information quality, and emerging market economies. He has published in such
journals as the Review of Quantitative Finance and Accounting, Review of Pacific Basin
Financial Markets and Policies, Pan Pacific Journal of Business Research, and Inter-
national Journal of Business and Finance Research. He received an MBA from the
University of Dallas and a PhD in finance from Old Dominion University.
Andrew Marshall is a Professor of Finance at the University of Strathclyde, which
he joined in 1991 after leaving KPMG. He was Head of Department from 2007 to
2013. His research focuses on risk management, insider trading derivatives, and in-
ternational finance. He has published more than 50 articles in such journals as the
Journal of Empirical Finance, European Financial Management, Journal of Corporate
Finance, and Journal of Business Finance and Accounting. He holds an MPhil in finance
from the University of Strathclyde.
Christopher Milliken CFA, is an industry professional and Vice President of Hen-
nion & Walsh Asset Management’s Portfolio Management Program. Hennion &
Walsh Asset Management is a Registered Investment Advisory firm that uses ETFs
in constructing its investment strategies. As director, Mr. Milliken works under the
chief investment officer and leads the firm’s capital market research efforts and as-
set allocation strategy and oversees the sales and trading desk. He received a BS in
business administration with a focus in finance from Marist College.
Matthew R. Morey is the New York Stock Exchange Research Scholar and Pro-
fessor of Finance at the Lubin School of Business, Pace University. His research
has been published in such journals as the Journal of Empirical Finance, Journal of
Banking and Finance, Journal of Financial and Quantitative Analysis, Journal of Interna-
tional Money and Finance, Journal of Investment Management, and Financial Analysts
Journal. His work has been cited in the Wall Street Journal, New York Times, Washing-
ton Post, Chicago Tribune, Financial Times, Money Magazine, National Public Radio,
and CNBC. He received the Investment Management Consultants Association’s
Journalism Award. Professor Morey has also testified before Congress on mutual
fund regulation. He has an undergraduate degree from the University of North
Carolina–Chapel Hill and a PhD in financial economics from the University of
California–Irvine.
Ehsan Nikbakht CFA, FRM, is a Professor of Finance in the Frank G. Zarb School
of Business at Hofstra University and previously served as Department Chair and
Associate Dean. He was on the Advisory Board of the International Association of
Financial Engineers and Chair of the Derivatives Committee of the New York Soci-
ety of Security Analysts. Professor Nikbakht currently serves on the editorial board
of Global Finance Journal. He authored Finance published by Barron’s and Foreign
Loans and Economic Performance. Professor Nikbakht received a BA from the Teh-
ran School of Business, an MBA from the Iran Center for Management Studies, and
a DBA in finance from the George Washington University.
Trevor Oliver is Vice President and Senior Quant Analyst, State Street Global Ad-
visors, San Francisco. Previously, he was the Vice President and Head of Defined
Contribution Research at State Street Global Advisors (SSGA) in San Francisco
where he was responsible for the advancement of SSGA’s standard defined contri-
bution offerings and for designing custom defined contribution solutions. Mr. Ol-
iver cofounded Yampa Quantitative, where he developed custom allocations and
xxiv ABOUT THE CONTRIBUTORS

asset-liability strategies for high net worth individuals and researched high frequency
trading strategies. He also spent six years at Barclays Global Investors, where he held
research positions in various groups including Structured Solutions, Cash Research
and Analytics, and Defined Contributions. Mr. Oliver holds several financial engi-
neering patents for dynamic retirement products. He earned a BS in physics from
Harvey Mudd College.
Ojwang’ George Omondi is the Banking and Finance sectional head in the Depart-
ment of Business Studies at Siaya Institute of Technology in Kenya. He teaches
diploma course units such as lending, financing of international trade, monetary
and financial systems, and practice of banking and investment. He supervises stu-
dent projects and works with various financial institutions to align student course
content to industry requirements. He also teaches undergraduate courses includ-
ing money and banking and financial management at Jaramogi Oginga Odinga
University of Science and Technology. He has 10 research papers online as the
Social Science Research Network. He received a B/ed in economics and business
studies from Maseno University and an MBA in finance from the University of
Nairobi.
Keith Pareti CIMA, is an industry professional and an investment consultant. He
currently works at ETF Sponsor WisdomTree as a Regional Director. Mr. Pareti pre-
viously held positions at an institutional derivatives advising firm and a proprietary
options trading firm. He has a BS in finance from Monmouth University.
Grady Perdue is a Professor of Finance at the University of Houston–Clear Lake.
He has been active in investment research and management for many years serving
both as a member of the board of a pension fund and a consultant to the investment
committee of another pension system. Professor Perdue also serves on the board
of directors of a large credit union. He is the author of two investments textbooks,
a co-author on another text, and the author of numerous articles on investment
management in such journals as the Financial Services Review, Journal of Fixed In-
come, and Journal of Financial Planning. Professor Perdue has served as the president
of the Academy of Financial Services, an international professional association. He
received a BA in political science from the University of Alabama, an MBA with
a management concentration from Auburn University–Montgomery, and both an
MA in finance and a PhD in economics from the University of Alabama.
Mark Potter is an Associate Professor of Finance at Babson College. He has been
at Babson College since 1995 teaching more than 100 courses at the undergradu-
ate, graduate, and executive education levels. Professor Potter has also held faculty
positions at MIT’s Sloan School of Management and Boston College. His areas of
expertise include investments and portfolio performance, behavioral finance, and al-
ternative investment strategies. His research has appeared in such journals as the
Journal of Portfolio Management, Journal of Business Finance and Accounting, Journal
of Financial Research, and Journal of Alternative Investments. His work has also been
featured in the Wall Street Journal, Kiplinger’s, and CFA Digest. Professor Potter re-
ceived a BS in finance from Bentley College, an MBA from Boston College, and a
PhD in finance from the University of Massachusetts–Amherst.
Larry J. Prather is the John Massey Endowed Chair and Professor of Finance at
Southeastern Oklahoma State University. His primary research interest is in invest-
ments, specifically in mutual funds, ETFs, market efficiency, and behavioral finance.
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 Fig. 307.—Rhizome of Polygonatum multiflorum: a bud; b
shoot; c d scars left by shoots of previous years.
 Fig. 308.—Smilax pseudosyphilitica: A shoot of male plant;
C ♂ -flower; D berry, almost ripe; E the same in longitudinal
section. B Smilax syphilitica: portion of branch with base of
leaf and tendrils.
B. Asparageæ, Asparagus Group. Scale-like leaves and green
assimilating branches.—Asparagus: horizontal rhizome. The aerial
shoots are very richly branched; the numerous needle-like bodies
upon the plant are leafless shoots, which are crowded together in
double scorpioid cymes in the axils of the scale-leaves; the two first
lateral axes, placed outside to the left and right, generally bear
flowers. Polygamous.—Ruscus (Butcher’s broom) is a S. European shrub
with leaf-like, ovoid or elliptical shoots (phylloclades) which are borne in the axils of
scale-like leaves, and bear flowers on the central line. Diœcious. Stamens 3,
united, anthers extrorse. Semele androgyna bears its flowers on the edge of the
flat shoot.
C. Smilaceæ. Smilax (Sarsaparilla) (Fig. 308); climbing shrubs
with the leaf-sheath produced into tendrils. The leaves have 3–5
strong nerves proceeding from the base, and are reticulate.
Orthotropous or semi-anatropous ovules. Diœcious (Fig. 308 C, E).
D. Dracæneæ. Fruit in some a berry, in others a capsule. The stem of
Dracæna, when old, has the appearance of being dichotomously branched; it has
the power of increase in thickness, and may become enormously thick. The
Dragon-tree of Teneriffe, measured by Humboldt, attained a circumference of 14
m. and a height of 22 m.; the leaves are large, linear or linear-lanceolate.—
Cordyline (East Asia), various species in gardens and greenhouses (Yucca is
closely allied). Astelia.
Pollination. Paris quadrifolia and Convallaria majalis have no honey, and are
chiefly visited by pollen-collecting bees (in the absence of insect visits self-
pollination takes place); Polygonatum multiflorum has honey secreted by septal
glands and protected by the base of the tubular perianth; it is pollinated by humble-
bees, etc. Asparagus officinalis has small, polygamous, greenish, honey-bearing
flowers; the ♂-flower is almost twice as large as the ♀; both have rudiments of the
opposite sex.
About 555 species; especially from N. America, Europe, and Central Asia.
Officinal: “Dragons’-blood,” a red resinous juice from the stem of Dracæna
and the roots of some Central American species of Smilax. The tuberous stems of
the Eastern Asiatic Smilax glabra are officinal. The flowers of Convallaria majalis
have been lately used as a substitute for Digitalis. Pungent, poisonous properties
are possessed by Paris. None of the species are used as food, except the young
annual shoots of Asparagus officinalis, a shore-plant which is used as a vegetable.
Order 4. Pontederiaceæ. Flowers generally zygomorphic, hypogynous, ☿, with
handsome, white or violet, petaloid perianth which forms a tube at its base. The
stamens are inserted at different heights in the perianth-tube, and are reduced to
three (in Heteranthera seldom to one). In some the ovary is trilocular with ∞ ovules
(Eichhornia), in others reduced to one loculus with one ovule (Pontederia). Fruit a
capsule or nut. Embryo as long as the abundant, mealy endosperm.—Tropical
water-plants (22 species) with peculiar sympodial branching, nearly the same as in
Zostera. Spikes without floral-leaves. Many intercellular spaces in the stem and
leaf.—In greenhouses: Eichhornia azurea, E. crassipes (both from tropical and
sub-tropical S. America); the latter has swollen petioles which serve as floats and
enable it to float freely on the water, sending down its roots into the mud.
Heteranthera reniformis, H. zosterifolia. Pontederia cordata.
Order 5. Amaryllidaceæ (Narcissi). The flower is epigynous,
otherwise exactly the same as in the Liliaceæ (6 stamens). The
majority, like these, are also perennial herbs with bulbs and scapes.
The fruit and the other characters as in the Liliaceæ. The external
appearance is, however, very different.
A. Amarylleæ have bulbs and the leaves generally arranged in
two rows; the flowers are borne singly or in umbel-like inflorescences
on lateral scapes, while the main axis of the bulb is unlimited.
Beneath the inflorescence is an involucre (Fig. 309).—Galanthus,
Snowdrop, has a polyphyllous perianth without corona; the three
inner perianth-leaves are emarginate and shorter than the outer; the
anthers dehisce apically. Leucojum differs in having the perianth-leaves equal
in length.—Amaryllis has a funnel-shaped perianth, entirely or nearly polyphyllous,
but somewhat zygomorphic. Crinum; Hæmanthus; Clivia.—Narcissus has a
tubular corona, a ligular structure arising from the perianth-tube
exterior to the outer stamens. In Pancratium (Fig. 309) the corona is united
with the filaments which appear to spring from its edge. Eucharis amazonica.
 Fig. 309.—Pancratium caribæum.
B. Hypoxideæ. The leaves, which are grass-like, dry, folded, and in some hairy,
spring from a rhizome, generally with a divergence of 1/3. Flowers small, perianth
polyphyllous, persistent, on which account perhaps the Hypoxideæ may be
considered as the least altered type. The chief characteristic is that the embryo is
separated from the hilum. Hypoxis; Curculigo (C. recurvata, a favourite ornamental
plant; S.E. Asia).
C. Alstrœmerieæ. (Alstrœmeria, Bomarea); stems long, leafy, often climbing.
D. Vellosieæ (Vellosia, Barbacenia); stem woody, usually dichotomously
branched, with terminal, single flowers; it bears numerous aerial roots which pierce
the leaves and surround the stem. Stamens often (by splitting) 6–18. High table-
lands of S. America and S. Africa.
 E. Agaveæ. Very similar to the Bromeliaceæ both in their distribution (nearly all
American) and in external appearance. They appear as gigantic bulbous plants
with perennial, aerial, generally short stem, and perennial, large, lanceolate or
linear, stiff, thick, and often thorny leaves, which form a large rosette; after the
course of several (8–20) years the terminal inflorescence is developed, which is
10–12 m. high, paniculate, and freely branched. Before the inflorescence expands,
a large quantity of sugar-containing sap is collected from A. americana by
removing the terminal bud; this on distillation yields “pulque,” the national drink of
Mexico. After flowering the entire shoot dies, but the subterranean lateral shoots
survive and reproduce the plant.—Agave americana, etc.; Fourcroya; Polianthes
tuberosa (Tuberose; Central America).
Distribution. The 650 species are chiefly natives of S. Africa and S. America.
Clivia, Hæmanthus, Amaryllis are from the Cape; Narcissus from S. Europe,
whence many species have been introduced; Galanthus and Leucojum are
especially from S. and Central Europe, and from the Caucasus.
Uses, few, except as ornamental plants: Galanthus nivalis; Leucojum;
Narcissus pseudonarcissus, N. poeticus, N. jonquilla, N. tazetta, etc.; Amaryllis,
Alstrœmeria, Eucharis, Crinum, Vallota, etc. The vascular bundles of the various
species of Agave (Agave rigida, var. sisalana, sisal hemp,) are used for cordage,
etc.
Order 6. Bromeliaceæ. The flowers are hypogynous, epigynous
or semi-epigynous; the perianth is divided into calyx and corolla;
stamens 6. The fruit is a capsule or berry with many seeds.
Endosperm mealy, embryo small, at the edge of the endosperm, but
not enclosed by it.
Fig. 310.—Aechmea miniata.
 Fig. 311.—Multiple-fruit of Ananassa
sativa.
Perennial herbs with a very characteristic appearance (Fig. 310);
the stem is most often short, thick, and crowned by a rosette of many
leaves, which are long, often very narrow, leathery, stiff, and with a
spiny edge; they are usually channeled, completely closing round
each other, with their edges forming a tightly closed hollow, in which
generally water is collected (this among other things insulates the
inflorescence and thus prevents the access of creeping insects, such
as ants). The presence of numerous stellate, water-containing hairs
often gives the leaves a grey appearance, and the layers of cells
beneath the upper epidermis of the lamina form an “aqueous tissue,”
which serves as a protection against the rays of the sun and
regulates the evaporation. The stomata are often situated in furrows
on the underside of the leaf, and hence cause a striped appearance.
They are all American (525 species), especially from S. America,
where they live partly as epiphytes on trees, partly in the clefts of
rocks, often on the steepest slopes, to which they firmly attach
themselves by aerial roots; some are terrestrial. The stem is seldom
tree-like or many metres in height (Puya, in Chili; Hechtia, in
Mexico). The inflorescence is a terminal spike, raceme, or panicle,
often with large and brightly-coloured floral-leaves. The flowers are
without scent. The seeds, in the species whose fruit is a capsule, are
often provided with wings (hairs, expansions, etc).—Ananassa
sativa, Pine-apple (W. Indies, Central America) is cultivated for the
sake of its juicy, aromatic fruits, which coalesce with their fleshy
bracts and form a large spike-like fruit-cluster (multiple-fruits,[29] Fig.
311) bearing on its apex a leafy shoot, which may be used as a
cutting. Seeds very rarely developed.—Tillandsia (T. usneoides is a
filamentous, richly branched, rootless epiphyte hanging in masses
from trees; Trop. Am.), Aechmea, Billbergia, Pitcairnia, etc.
Uses. The leaves of the Pine-apple, in its native country, are used for the
manufacture of cloth.
Order 7. Hæmodoraceæ. 120 species; in all parts of the world except Europe;
perennial, often tomentose and resembling the Bromeliaceæ, Iridaceæ and
Amaryllidaceæ. Hæmodorum (Australia).—To this order belong Ophiopogon,
Peliosanthes, Sanseviera, and others.
Order 8. The Iridaceæ have epigynous, hermaphrodite flowers
with petaloid perianth as in the Amaryllidaceæ, but the interior whorl
of stamens is entirely suppressed, and the 3 developed outer
stamens have extrorse anthers (Fig. 279); there is 1 style with 3
large, generally more or less leaf-like branches bearing the stigmas.
Ovary and capsule as in the Amaryllidaceæ and Liliaceæ.—
Perennial herbs; bulbs are rarely found, but horizontal rhizomes,
corms, etc., take their place. The leaves are (except Crocus) as in
the Iris, two-rowed, equitant and sword-like. Flowers or
inflorescences terminal.
The Iris (Flag) has a horizontal rhizome. The flowers are borne in
the leaf-axils in fan-like inflorescences (rhipidium). The branches of
the style are large and petaloid; on their under surface may be seen
a small projecting shelf (Fig. 312 a) having on its upper surface the
stigmatic hairs. Beneath the branches of the style are 3 well
protected stamens, and immediately outside these the external
perianth-leaves. The honey is secreted in the perianth-tube, and the insects,
endeavouring to obtain it through the narrow passages at the base of the stamens,
settle upon the outer perianth-leaves, which are bent backwards and often very
hairy along their central line. The insects then rub their backs on the anthers just
above them, beneath the branches of the style; they readily deposit the pollen on
the stigma of another flower as they enter it, but cannot do so in withdrawing, since
the stigma is pushed back, and self-fertilisation is thus avoided. The stylar
branches lie close to the outer perianth-leaves, which are just beneath them, or
separated by a distance of only 6–10 mm.; the first form of flower is adapted for
Rhingia rostrata, the latter for bees.—Crocus has vertical, tuberous,
underground stems surrounded by the leaf-sheaths (corms), and
terminal flowers; the linear leaves are not equitant, but have two
longitudinal furrows on the under side. The perianth is gamophyllous
and funnel-shaped. The stylar branches (stigmas) are fleshy, rolled
together in the shape of a horn, and split along the edge.—Gladiolus
has corms like the Crocus; spikes with slightly zygomorphic, almost
bilabiate flowers, most frequently turning to one side. Position of the
leaves as in the Iris.—Diplarrhena has 2 fertile and 1 barren stamen;
Hermodactylus has a unilocular ovary with 3 parietal placentæ. Cypella and
Tigridia have bulbs.
 Fig. 312.—Iris pseudacorus. One external and two
internal perianth-leaves, and one of the stylar-branches
have been removed, y The outer, i the inner perianth-
leaves; g stylar-branch; a stigma; s anther. The ovary is
seen in longitudinal section.
770 species; chiefly in the countries round the Mediterranean, and in Africa,
especially the Cape (Gladiolus, Ferraria, Moræa, Galaxia, Sparaxis, Antholyza,
Tritonia, Ixia, etc.), Australia and Tropical America (Sisyrinchium, Tigridia, Cipura,
Cypella, etc). A great number are ornamental plants: the cultivated Crocus-species
are from the South of Europe and Asia; Gladiolus communis from S. Europe; the
other species principally from S. Africa. The native species of Iris are I.
pseudacorus (yellow) and I. fœtidissima.
Officinal: the stigmas of Crocus sativus (Oriental, cultivated in France, Spain,
Italy, and Austria), used as a colouring matter, saffron; the rhizomes of the S.
European Iris florentina, pallida, and germanica (“Orris-root”).
 Fig. 313.—Dioscorea batatas: A ♂-plant; B ♂-flower; C ♀-plant (nat. size); D, E
♀-flowers (mag.); F seed; G embryo.
Order 9. Dioscoreaceæ. Perennial herbs with fleshy, often very
large tuberous rhizomes (or roots); twining stems; leaves stalked,
often arrow- or heart-shaped, lobed, palminerved and finely
reticulate as in the Dicotyledons (Fig. 313). The flower is diclinous
(most frequently diœcious), regular, epigynous, small, and of a
greenish colour, but otherwise typical (Pr3 + 3, and A3 + 3, or G3); in
most instances 2 ovules are placed one above the other in each
loculus. The inflorescence is a spike or raceme, sometimes richly
branched and paniculate.—The order approaches most nearly to the
Amaryllidaceæ.
Tamus (Bryony) has a berry, Dioscorea (Yam) a thin-walled, 3-
edged or 3-winged capsule (Fig. 313). Both have subterranean or
aerial tubers; the Yam very often also developes tubers in the axils of
the foliage-leaves; tuberous roots are said to occur in D. batatas.
The tubers of many species of Yams (D. batatas from China and
Japan, D. alata, South Sea Islands and India, D. bulbifera) are a very
important source of food in the Tropics, especially the first-named.—
Testudinaria; Rajania.—The tuberous stem of Tamus communis and
Testudinaria elephantipes, and some species of Dioscorea is formed from one
single internode (epicotyl), and the aerial shoots are developed from adventitious
buds; in T. elephantipes the stem is aerial, and covered with thick scales of cork,
regularly arranged, and separated by grooves.
Tropical order (167 species); 2 species (Tamus communis and Borderea
pyrenaica) in Europe.

Family 6. Scitamineæ.
The flowers belong to the ordinary monocotyledonous type. They
are hermaphrodite, epigynous, and have either a petaloid perianth,
or calyx and corolla; they are, however, zygomorphic or
unsymmetrical, and of the stamens most frequently only one is
completely developed, the others being generally represented by
petaloid staminodes. The ovary has 3 loculi, more rarely it is
unilocular with the suppression of 2 loculi. Endosperm is absent
(except Zingiberaceæ); but, on the other hand, there is a large
perisperm. To this family belong large, glabrous, especially perennial
herbs with rhizomes; leaves large, distinctly divided into sheath,
stalk, and blade, the latter being more or less elliptical or lanceolate,
entire, with pinnate venation, and always with a very well-
pronounced midrib, gradually tapering towards the apex, and giving
off numerous branches, which run outwards, towards the margin, at
a larger or smaller angle; these lateral veins are closely packed, and
parallel, but with only weak, connecting branches between them; the
leaves, therefore, are easily torn pinnately (Figs. 314, 317). The leaf-
sheaths close tightly round each other and form a false stem.
This very natural family comprises orders closely connected with
each other, but is not itself nearly allied to any other family. First in
the series stands:—
Order 1. Musaceæ. The petaloid perianth is strongly
zygomorphic, the anterior leaf being very large (a kind of “labellum”),
the posterior one small; only the posterior stamen is wanting, or is
rudimentary, the other five are developed, and have quadrilocular
anthers; ovary, 3-locular. Seed with straight embryo in mealy
perisperm.

Fig. 314.—Two Musa-species.

 The best-known genus is Musa, the Banana (Fig. 314). From the
short rhizome arise enormously large, spirally-placed leaves, whose
sheaths envelope one another, and form an apparently aerial stem,
several metres in height. The inflorescence is a terminal spike with
floral-leaves placed spirally, and sometimes magnificently coloured;
in the axils of each of these several flowers are situated in two
transverse rows (accessory buds); the lowest flowers in the
inflorescence are ♀ , the central ones ☿, the upper ones ♂ , so that
fruits are only found in the lower region of the inflorescence, the
remaining portion persisting as a naked axis after the floral-leaves
and flowers have fallen off; the inflorescence terminates in an ovoid
bud formed by the flowers which have not yet opened (Fig. 314, the
left-hand figure). The perianth-leaves are united (except the posterior
one). The fruit (known as a “Banana”) is a berry, having the form of a
smooth, short, three-cornered Cucumber (as much as 30 cm. in
length); inside the tough skin is found a farinaceous, aromatic pulp.
No seed is developed in the cultivated species.—Several Musa-species
are cultivated in the Tropics for the sake of the fruit (M. paradisiaca, M.
sapientum); for the fibrovascular bundles, M. textilis (Manilla Hemp).—Their home
is, no doubt, the Tropics of the Old World; they were introduced into America
before the arrival of Europeans. Musa ensete has dry, leathery fruits; an
ornamental plant.
In Musa the barren, posterior stamen belongs to the inner whorl; and also in
Strelitzia and Ravenala; the latter may have all 6 stamens developed. In Heliconia,
on the contrary, it belongs to the outer whorl; in Heliconia the perianth-leaves are
differently arranged, and there is only one ovule in each loculus. The three latter
genera have dry fruits and leaves arranged in two rows. In the “Travellers’ Palm”
(Ravenala madagascariensis) the foliage-leaves form an enormous fan.—Tropical;
about 50 species.
The order may be divided as follows:—1. Museæ: Musa,
Ravenala, Strelitzia in the Old World. 2. Heliconiæ: Heliconia in the
New World.
 Fig. 315.—Diagram of a
Zingiberaceous flower (Kæmpferia
ovalifolia): b bract; v bracteole; k calyx;
p1, p2, p3 the petals; sst, lateral
staminodes (“wings”); lab labellum
(formed of two staminodes); st the fertile
stamen; * position of suppressed
stamen. The ovary is in the centre of the
diagram.]
Order 2. Zingiberaceæ. Perianth most frequently divided into
calyx and corolla. Calyx gamosepalous. Only 1 fertile stamen (the
posterior, Fig. 315, belonging to the inner whorl) with quadrilocular
anther, which encloses the style in a furrow; the 2 stamens in the
outer whorl are staminodes, the median one (the anterior) is wanting.
The 2 lateral staminodes of the inner whorl form the “labellum” (Fig.
315 lab), which usually is the largest segment of the flower, and is
often bilobed. Ovules many. The fruit in some is a leathery, 3-valved
capsule, with loculicidal dehiscence; in others it is more or less
berry-like and indehiscent, or irregularly dehiscent. Straight embryo.
—The aerial stem is seldom developed to any extent, and the
inflorescences, which are (compound) spikes or racemes, often with
coloured floral-leaves, spring in some (e.g. Zingiber officinale)
directly from the rhizome. The leaves are arranged in two rows.—
The ovary in a few instances (Globba and others) is unilocular, with 3
parietal placentæ.
They are perennial herbs with fleshy and tuberous rhizomes, which are used as
condiments and in medicine on account of their pungent and aromatic properties
and also for starch, dyes, etc. Officinal: rhizomes of Zingiber officinale (Ginger,
unknown wild, but cultivated generally in the Tropics), of Curcuma longa (Turmeric,
a dye, E. India) and C. zedoaria, of C. angustifolia and others (as E. India
Arrowroot), of Alpinia officinarum, China (galangal). “Preserved Ginger” from
Alpinia galanga. Similar aromatic materials (volatile oils) are present also, for
example, in the fruits; Cardamom fruits and seeds (from Elettaria cardamomum,
China, seldom from E. major).
315 species; Tropics, preponderating in the Eastern Hemisphere, India, and
especially S. Asia, whence all the aromatic species originate; they are now
commonly cultivated in the Tropics. Some are ornamental plants in greenhouses,
e.g. Hedychium, Costus, etc. Globba (with axillary buds in the inflorescence, as in
Ficaria), Renealmia, Kæmpferia.
 Fig. 316.—Flower of Canna: f
ovary; pa calyx; pi corolla; l
labellum; st stamens; an anther;
g stigma; α and β staminodes.
Order 3. Cannaceæ. American herbs without aromatic properties.
Flowers asymmetric (Fig. 316). Calyx polysepalous. The stamens
are petaloid (Fig. 316 st) and barren with the exception of one (the
posterior), which bears on one of its edges a bilocular anther;
another, which is especially large and coloured, is termed the
labellum. The style is compressed and leaf-like, with a small stigma
at the apex. Ovules numerous in the 3 loculi. The capsule is
furnished with warts or soft prickles. Embryo straight.
Canna (30 species; Trop. Am.). The inflorescence is a terminal
spike with 2-flowered unipared scorpioid cymes in the axils of the
floral-leaves. Ornamental plants: Canna indica, etc.
The diagram of the andrœcium of the Cannaceæ and
Marantaceæ may be represented in the following manner (calyx,
corolla and gynœceum being omitted):—
Cannaceæ. Marantaceæ.
w w w w
st st
w lab wi c
* *
w The lateral staminodes, “wings;” st fertile stamen; * the suppressed stamen;
lab labellum; c hood; wi inner-wing.
The labellum of the Cannaceæ corresponds with the hood of the Marantaceæ
and not with the labellum of the Zingiberaceæ.

Fig. 317.—Calathea zebrina.

Order 4. Marantaceæ. The flower is asymmetrical. Only 1 or 2 of
the 3 stamens in the outer whorl are present as staminodes; in the
inner whorl 2 are petaloid and of the sixth stamen one-half is
developed as a staminode and the other half bears a bilocular
anther. One ovule only in each loculus. The style is strongly curved
and at first enclosed in one of the staminodes (hood) of the inner
whorl; later on it springs elastically forward towards the other
staminode (inner-wing) of the same whorl. The stigma is very oblique
or 2-lipped. Two of the three loculi of the ovary, in some (Maranta,
Thalia) become small and empty. Embryo curved. Leaves in two
rows, with sheath, stalk, and blade (Fig. 317); at the base of the last
is a characteristic swelling (articulus).—Phrynium, Calathea, Stromanthe,
Ctenanthe, Saranthe, etc. About 150 species; tropical, especially America. The
starch of the rhizome of Maranta arundinacea is officinal, “West Indian
Arrowroot.”

Family 7. Gynandræ.
The flowers are hermaphrodite and constructed on the ordinary 3-
merous, pentacyclic type with petaloid, epigynous, strongly
zygomorphic perianth, and generally one-stamened by the
suppression of the other 5 stamens. The family has derived its name
from the fact that the stamen is united with the style into a “stylar
column” (except Burmanniaceæ). All are herbs; many grow as
epiphytes on other plants.
This family and the Scitamineæ occupy correspondingly high positions among
the Monocotyledons; these two families may therefore be placed close together,
although one cannot be derived from the other. The first of the two orders is very
small, but the second is very rich in species. The Apostasieæ are best classed
with the Orchidaceæ and have no independent place.
Order 1. Burmanniaceæ. This order forms a transitional link
between the Gynandræ and the epigynous Liliifloræ
(Amaryllidaceæ), in having a 6-leaved perianth, and 6–8 stamens;
but some have a labiate perianth (the median perianth-leaf of the
outer whorl being very large). The ovary is most frequently unilocular
with three parietal placentæ; but in some it is 3-locular with axile
placentation. Capsule. Seeds ∞, small, with endosperm. The
relationship to the Orchidaceæ is shown especially in the very
imperfectly developed embryo and in the ovary. Small, tropical herbs
(59 species); some are saprophytes.