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Article
Publication date: 18 May 2010

Javier Rodríguez

The purpose of this paper is to examine the performance of a sample of socially responsible mutual funds (SRMFs) and a matched sample of conventional funds during the…

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910

Abstract

Purpose

The purpose of this paper is to examine the performance of a sample of socially responsible mutual funds (SRMFs) and a matched sample of conventional funds during the 1997‐2005 time period.

Design/methodology/approach

Risk‐adjusted performance is examined using several methodologies, including a measure that compares the performance of a fund with that of an efficient and volatility‐match benchmark portfolio.

Findings

On the basis of the raw returns, socially responsible funds performed better than some market indexes but this evidence of outperformance disappears once risk is incorporated into the analysis. Consistent with previous studies, no evidence was found of out performance by socially responsible funds. Also, the difference between the performance of SRMFs and conventional mutual funds is not statistically significant. This result is robust to the use of two additional measures of risk‐adjusted performance.

Originality/value

To measure risk‐adjusted performance, a measure first introduced by Graham and Harvey was employed. Similar to the Jensen's alpha of a single factor model, the Graham and Harvey measure evaluates fund performance relative to a volatility‐match benchmark but does not depend on a linear model specification and thus is free from the potential biases presented by linear models.

Details

Review of Accounting and Finance, vol. 9 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 23 January 2007

Fikriyah Abdullah, Taufiq Hassan and Shamsher Mohamad

One of the implications of Islamic investment principles is the availability of Islamic financial instruments in the financial market. The main aim of this research is to…

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15026

Abstract

Purpose

One of the implications of Islamic investment principles is the availability of Islamic financial instruments in the financial market. The main aim of this research is to observe the differences in terms of performance between Islamic and conventional mutual fund in the context of Malaysian capital market.

Design/methodology/approach

To achieve the major objectives of this paper standard methods wereused for evaluating the mutual funds performance, for example, Sharpe index and adjusted Sharpe index, Jensen Alpha, Timing and selectivity ability. The scope of the paper is to measure the relative quantitative performance of funds which was managed based on two different approaches.

Findings

The basic finding of the paper is that Islamic funds performed better than the conventional funds during bearish economic trends while, conventional funds showed better performance than Islamic funds during bullish economic conditions. In addition to that finding, both conventional and Islamic funds were unable to achieve at least 50 per cent market diversification levels, though conventional funds are found to have a marginally better diversification level than the Islamic funds. The results also suggest that fund managers are unable to correctly identify good bargain stocks and to forecast the price movements of the general market.

Research limitations/implications

The main limitation is that the samples of conventional and Islamic mutual funds were from one developing market. The findings could be better validated if the sample included the mutual funds from other developed and developing economies, where both Islamic and conventional funds are available.

Practical implications

The findings suggest that having Islamic mutual funds in an investment portfolio helps to hedge the downside risk in an adverse economic situation.

Originality/value

So far there is no published evidence on the relative performance of Islamic and conventional mutual funds in Malaysia as well as other developing countries. Therefore, this paper adds new knowledge to the mutual funds literature.

Details

Managerial Finance, vol. 33 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 28 September 2021

Avinash Ghalke and Shripad Kulkarni

When a fund manager leaves, the investment strategy of the fund changes or remains the same. The departing fund manager's resignation is either forced or voluntary. The…

Abstract

Purpose

When a fund manager leaves, the investment strategy of the fund changes or remains the same. The departing fund manager's resignation is either forced or voluntary. The study investigates the relationship between the portfolio manager's transition and the fund's investment strategy and how the change affects the mutual fund returns in the subsequent period.

Design/methodology/approach

The authors examine 148 fund manager changes in India between April 2005–March 2018 using three performance measures: abnormal return (fund return minus benchmark return), Jensen's alpha and Carhart four-factor alpha. The analysis includes an event study methodology, followed by a two-step Fama–MacBeth regression approach.

Findings

Contrary to the previous studies conducted in the developed markets, the authors find that fund performance improves irrespective of whether the fund manager change is forced or voluntary. The outperformance after the fund manager's exit is significant for funds belonging to the larger fund families.

Originality/value

In the context of investment management, the authors provide a conceptual framework to understand the effect of fund manager exit on mutual fund performance. The authors substantiate their arguments with empirical evidence. To the best of the authors' understanding, this is the first research to examine the effect of changing mutual fund managers in an emerging market setting.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 8 April 2021

Anurag Bhadur Singh and Priyanka Tandon

The present study tries to explore the various fund attributes that influence the mutual fund performance. Further, study examined the effect of mutual fund attributes…

Abstract

Purpose

The present study tries to explore the various fund attributes that influence the mutual fund performance. Further, study examined the effect of mutual fund attributes namely, Net Asset Value (NAV), Portfolio turnover ratio (PTR), fund size (AUM), expense ratio (ExpR) and fund age (Age) on mutual fund's performance using gross return and risk-adjusted performance measures.

Design/methodology/approach

The study evaluated balanced panel data (short panel) comprising 81 Indian equity mutual fund schemes for the period of 2013–2019. The study estimated relationship between fund attributes (Net asset value, Portfolio turnover ratio, Fund age, fund size and Expense ratio) and fund performance (using gross return and risk-adjusted performance measures), through panel data regression using fixed-effects model as suggested by Hausman specification test on transformed data (due to high multicollinearity), with cluster-robust estimators due to the presence of heteroskedasticity in the model.

Findings

The findings of the study suggested that using gross return as fund performance measure, PTR, NAV, AUM, Age exhibit significant relationship with the fund performance whereas using risk-adjusted performance measures (Treynor ratio and Jensen alpha) NAV and ExpR significantly influences the fund performance. Identification of the significant relationship between fund characteristics and fund performance offers valuable insights to the investors and fund managers for rationally managing their portfolio with the ultimate objective of the wealth maximization.

Research limitations/implications

The study considered only 81 equity mutual fund schemes. Some of the data were not available at the time of the study due to the policy of the company. The present study contributes significantly in examining the expected association between fund attributes and fund performance in the context of Indian mutual fund industry where this relationship were explored less.

Practical implications

The findings of the present study will help the investors to take the rational investment decision with the ultimate objective of maximum return with minimal risk. The findings also offer significant germane to the stakeholders in making rational decision-making process.

Originality/value

There is dearth of study concerning the relationship between mutual fund characteristics and fund performance with respect to Indian mutual fund industry. Therefore, study provides valuable insights to the area of the portfolio selection and management with respect to Indian mutual funds.

Details

Benchmarking: An International Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-5771

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Article
Publication date: 5 March 2018

Yuhong Fan

The purpose of this study is to examine the impact of position adjusted turnover ratio on mutual fund performance.

Abstract

Purpose

The purpose of this study is to examine the impact of position adjusted turnover ratio on mutual fund performance.

Design/methodology/approach

The author calculates position adjusted turnover ratio in the same three steps as Edelen et al. (2013). Position adjusted turnover ratio is intended to be a trading cost proxy that captures both fund trading volume and per-trade costs. A metric of eight Morningstar performance measures is utilized.

Findings

Results show that funds with a higher position adjusted turnover ratio tend to have a lower risk-adjusted performance, such as indicated by both Sharpe and Sortino ratios, and even though these funds may have a higher annualized return.

Research limitations/implications

The sample selection process is subject to a survival bias. Also, this study utilizes Morningstar performance measures rather than the widely used factors models.

Practical implications

This study examines the impact of invisible costs from fund trading. These findings encourage fund managers to take strategic steps to reduce the overall invisible cost impact to improve fund performance.

Originality/value

Few studies have investigated fund trading cost measured by position adjusted turnover ratio and its impact on fund performance. Further, this study contributes to current literature by using eight Morningstar fund performance variables, which are practitioner-oriented and are accessible by investors.

Details

Studies in Economics and Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 8 May 2017

Sanjay Sehgal and Sonal Babbar

The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds

Abstract

Purpose

The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context.

Design/methodology/approach

Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Elton et al. (1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model.

Findings

Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios.

Practical implications

A significant α generated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking.

Originality/value

The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.

Details

Journal of Advances in Management Research, vol. 14 no. 2
Type: Research Article
ISSN: 0972-7981

Keywords

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Article
Publication date: 21 June 2019

Halil Kiymaz

The purpose of this paper is to examine socially responsible investment (SRI) fund performance and investigate the factors influencing fund performance.

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2073

Abstract

Purpose

The purpose of this paper is to examine socially responsible investment (SRI) fund performance and investigate the factors influencing fund performance.

Design/methodology/approach

The study uses return data from the Morningstar database for 152 SRI funds from January 1995 to May 2015. The initial analysis includes the use of various risk-adjusted performance measures, including Sharpe ratio, Treynor ratio, Information ratio, Sortino ratio and M2. The study also uses four factor models, including Jensen single-factor model, Fama–French three-factor model, Carhart four-factor model and Fama–French five-factor model to explain SRI fund returns. Finally, a cross-sectional regression analysis is applied to investigate the determinants of SRI fund returns.

Findings

The results show that, on average, the SRI funds provide comparable risk-adjusted returns relative to various benchmark market indices. Market factor is significant in explaining SRI fund returns. Examining each factor model, the results do not support Fama–French’s three-factor model as neither size nor value factor is significant. The author finds weak support for Carhart’s momentum factor along with the market factor. Finally, the Fama–French five-factor model shows market, size and operating profit factors explain SRI fund returns. The study also finds the fund performance is stronger for funds with the higher turnover ratio, the larger fund size and more managerial experience and lower for funds with higher expense ratio. Also, funds formed with negative screening perform better than positive or mixed screened funds.

Originality/value

SRI funds have received considerable attention from investors. This study contributes to the literature by examining SRI fund performance and investigating factors influencing their performance using multiple factor models and cross-sectional regression analysis. The findings are relevant for investors who demand responsible investment opportunities without sacrificing returns for nonfinancial screenings. Findings also suggest that investors should consider fund characteristics when selecting SRI funds.

Details

Journal of Capital Markets Studies, vol. 3 no. 1
Type: Research Article
ISSN: 2514-4774

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Article
Publication date: 3 August 2015

Ahmad Ridhuwan Abdullah and Nur Adiana Hiau Abdullah

The purpose of this paper is to examine the risk-adjusted performance of rated funds and determine the usefulness of Lipper Leader rating of unit trusts in Malaysia during…

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1297

Abstract

Purpose

The purpose of this paper is to examine the risk-adjusted performance of rated funds and determine the usefulness of Lipper Leader rating of unit trusts in Malaysia during the period 2000 to 2010.

Design/methodology/approach

The paper utilizes the Sharpe ratio, Treynor ratio, Jensen’s alpha and Fama-French three-factor model to measure performance.

Findings

During the period of study, the performance of the market index and risk-free rate outperformed that of 68 equity unit trust funds in the 3-year, 5-year and 10-year investment horizons. The ranking, based on four performance measures, corresponds to Lipper rating for the lowest rated and leader funds, but not for the three- and four-key rated funds. Further, there is a significant difference in the performance of the five-key, four-key and three-key rated funds which outperform the lowest rated funds, indicating that Lipper rating is able to distinguish superior and inferior unit trust funds.

Research limitations/implications

Some of the limitations in this study are that the indexes could be self-constructed. The existing index might not represent the asset allocation of the funds concerned. Additional variables might have to be considered when examining fund performance as they should correspond to the characteristics of a fund.

Practical implications

The results indicate that Lipper rating classification could identify the highest and lowest performing funds. Therefore, investors could use this rating to make informed investment decisions without undertaking time-consuming analysis to ascertain the good- and bad-quality funds in the market.

Social implications

The findings of this study could be used by the academia as another source of reference to enhance their understanding of the applicability of Lipper rating for unit trust funds in an emerging market.

Originality/value

The contribution of this study is that it analyzes the effectiveness and capability of Lipper Leader rating in identifying quality funds in the context of an emerging market. Performance comparison between Lipper Leader rating and methods used in the portfolio theory bridges the theory-practice gap between practitioners and academics. To date, there have been no attempts to study and compare the ratings of advisory firms with theoretical performance measures, particularly in the context of Malaysia.

Details

Studies in Economics and Finance, vol. 32 no. 3
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 30 December 2019

Ofer Arbaa and Eva Varon

The purpose of this paper is to study the sensitivity of provident fund investors to past performance and how market conditions, changes in risk and liquidity levels…

Abstract

Purpose

The purpose of this paper is to study the sensitivity of provident fund investors to past performance and how market conditions, changes in risk and liquidity levels influence the net flows into provident funds by using a unique sample from Israel.

Design/methodology/approach

The study checks the impact of different levels of fund performance on provident fund flows using three alternative proxies for performance: raw return and the risk adjusted returns based on the Sharpe ratio and the Jensen’s α. The analysis relies on the time fixed effect and fund fixed effect regression models.

Findings

Results reveal that there exists an approximately concave flow–performance relationship and performance persistence among Israeli provident funds. Israeli provident fund investors are risk averse so they overreact to bad performance both in bull and bear markets. Moreover, liquidity is an important factor to influence the flow–performance curve. The investors’ strong negative response to poor performance and relative insensitivity to outperformance show that provident fund managers are not rewarded for their risk-shifting activities as in mutual funds.

Originality/value

The authors explore the behavior of investor flows in non-institutional retirement savings funds specifically outside of the USA, which is a topic not properly investigated in literature. Moreover, examining inflows and outflows separately gives the authors a richer understanding of investors in pension schemes. This study also enhances the understanding of the impact of fund liquidity on the flow–performance relationship for the retirement funds segment.

Details

International Journal of Managerial Finance, vol. 16 no. 3
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 12 March 2018

Claudia Champagne, Aymen Karoui and Saurin Patel

The purpose of this paper is to propose a new measure of portfolio activity, the modified turnover (MT), which represents the portion of the portfolio that the manager…

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1888

Abstract

Purpose

The purpose of this paper is to propose a new measure of portfolio activity, the modified turnover (MT), which represents the portion of the portfolio that the manager changes from one quarter to the next. Compared with the traditional turnover, the MT measure has a distinct interpretation, relies on portfolio holdings, includes the effects of flows and ignores the effects of offsetting trades.

Design/methodology/approach

Using quarterly holdings data, the authors examine the relationship between fund turnover, performance, and flows for a sample of 2,856 actively managed mutual funds over the period 1991-2012. The authors provide numerical examples to illustrate how the suggested measure, MT, is different from the traditional turnover measure. The authors use panel regressions, simple and double sorts to examine the predictability of performance.

Findings

The authors find evidence that high MT predicts lower performance. The comparison between the highest and lowest quintiles sorted based on MT reveals a difference of −2.41 percent in the annual risk-adjusted return. Furthermore, high MT predicts lower net flows. The authors also find that MT relates positively to other activeness measures while volatility, flows, size, number of stocks, and the expense ratio are significant determinants of MT. Overall, the results suggest that frequent churning of a portfolio is value destroying for investors and signals a manager’s lack of skill.

Originality/value

The authors offer a simple measure, namely, MT, for estimating the fraction of a portfolio that changes from one quarter to the next. Armed with this tool, the authors investigate whether funds deviate from their previous quarter’s holdings because of valuable or noisy information, and whether such signals are exploited by fund investors.

Details

Managerial Finance, vol. 44 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

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