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1 – 10 of 344Thabo J. Gopane, Noel T. Moyo and Lesego F. Setaka
Stirred by scant regard for market phases in portfolio performance assessments, the current paper investigates the active versus passive investment strategies under the bull and…
Abstract
Purpose
Stirred by scant regard for market phases in portfolio performance assessments, the current paper investigates the active versus passive investment strategies under the bull and bear market conditions in emerging markets focusing on South Africa as a case study.
Design/methodology/approach
Methodologically, the measures of Jensen's alpha and Treynor index are applied to the monthly returns of 20 funds from January 2010 to June 2022.
Findings
The results are enlightening; though they contradict developed market evidence, they are consistent with emerging market trends. The findings show that actively managed funds outperform the market benchmark and passive investing style under bear and normal market conditions. Passive investment strategy outperforms both market benchmark and actively investing style under bull market conditions.
Practical implications
In the face of improved market efficiency, increased liquidity and recent technological impact, the findings of this study have practical application. The study outcomes should inform and update global investors, especially asset managers interested in emerging markets; however, the limitations of the study should also be considered.
Originality/value
While limited studies consider market conditions when comparing and contrasting the performance of passive versus active investing, such consideration is lacking in emerging markets. The current study corrects this literature imbalance.
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Fauziah, Taib and Mansor Isa
This paper seeks to focus on examining unit trust performance in Malaysia over the period 1991‐2001.
Abstract
Purpose
This paper seeks to focus on examining unit trust performance in Malaysia over the period 1991‐2001.
Design/methodology/approach
The broad based study covers full economic cycles using 7 different performance measures: raw return, market adjusted return, Jensen's alpha, adjusted Jensen's alpha, Sharpe Index, adjusted Sharpe Index, and Treynor Index.
Findings
The results show that on average the performance of Malaysian unit trust falls below market portfolio and risk free returns. However, the variance of unit trust monthly returns is less than the market. Performance by type of funds indicates that bond funds show relatively superior performance, over and above the market and equity unit trusts. This is due to the high interest rate kept during the crisis period. Findings also suggest that there is no persistency in performance as there is no significant inter‐temporal correlation between past and current performance.
Research limitations/implications
The issue of inferior performance needs further investigations to adjust for great importance placed on maintaining consistent dividend distribution. In addition, ill‐managed funds must be separately analysed to see if limited budget, less qualified managers, use of limited information and less sophisticated software could explain the poor performance.
Practical implications
A very useful source of information for potential investors and portfolio management companies looking for opportunities to invest.
Originality/value
The paper contributes to the present body of knowledge by offering broad based performance evidence from an emerging market with strong government back up for unit trusts investment.
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Kristine L. Beck, James Chong and Bruce D. Niendorf
This study aims to examine whether a good corporate reputation leads to superior investment returns. Theory and empirics provide support for the idea that a good corporate…
Abstract
Purpose
This study aims to examine whether a good corporate reputation leads to superior investment returns. Theory and empirics provide support for the idea that a good corporate reputation improves firm value, but much of the previous research fails to consider the risk of the companies they study and relies only on accounting measures of performance such as return on assets. A complete picture of the relationship between corporate reputation and shareholder value should include risk-adjusted returns and correlation with benchmark returns.
Design/methodology/approach
The Harris Poll Reputation Quotient (RQ), based on the reputations of the 100 most visible companies, suggests that companies with a “solid reputation” are more likely to be attractive investments. The authors construct portfolios using deciles and the RQ categories, rebalancing annually as RQ rankings are updated. Returns are adjusted for risk using Jensen's alpha, the information ratio, the Sharpe ratio, Modigliani and Modigliani's M2 measure, and Muralidhar's M3 measure.
Findings
The results indicate that choosing a portfolio based on the highest RQ-ranked firms does outperform the market on a risk-adjusted basis, and that the relationship between rankings and time-weighted returns is roughly monotonic. The authors also observe that corporate reputation is persistent, and that the best and worst most-visible firms are more likely to be privately held.
Originality/value
This research adds to the literature by including both market-based return measures and risk in the examination of the relationship between corporate reputation and financial performance.
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Pick-Soon Ling, Ruzita Abdul-Rahim and Fathin Faizah Said
This study aims to investigate Malaysian stock market efficiency from the view of Sharīʿah-compliant and conventional stocks based on the effectiveness of technical trading…
Abstract
Purpose
This study aims to investigate Malaysian stock market efficiency from the view of Sharīʿah-compliant and conventional stocks based on the effectiveness of technical trading strategies.
Design/methodology/approach
This study uses unconventional trading strategies that mix buy recommendations of Bursa Malaysia analysts with sell signals generated from 10 selected technical trading strategies (simple moving average, moving average envelopes, Bollinger Bands, momentum, commodity channel index, relative strength index, stochastic, Williams percentage range, moving average convergence divergence oscillator and shooting star) that are detected using ChartNexus. The period from 1 January 2013 until 31 December 2015 produces a total sample consisting of 1,265 buy recommendations of 125 Sharīʿah-compliant stocks and 400 buy recommendations of conventional stocks. The study period is extended until 31 March 2016 to provide an ample time for detecting the sell signal especially for buy recommendations that are released towards the end of 2015.
Findings
The resulting Jensen’s alpha show 8 out of 10 strategies are effective in generating abnormal returns in Sharīʿah-compliant samples while only 3 out of 10 strategies are effective in conventional samples. Prominent effectiveness of technical trading strategies in Sharīʿah-compliant stocks implies clear inefficiency in that stock market segment as opposed to those of the conventional stocks.
Originality/value
The results based on unconventional trading strategies provide new insights of Malaysian stock market efficiency especially in Sharīʿah-compliant and conventional stocks. The paper provides more robust findings on market efficiency as firms’ equity level data were focussed together with analysts’ buy recommendations from Bursa Malaysia.
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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 the…
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.
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Salman Ahmed Shaikh, Mohd Adib Ismail, Abdul Ghafar Ismail, Shahida Shahimi and Muhammad Hakimi Mohd. Shafiai
This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods.
Abstract
Purpose
This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods.
Design/methodology/approach
The authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973).
Findings
The authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market.
Practical implications
It will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments.
Originality/value
The authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.
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The recommendation of the analyst report is not only limited to a small number of ratings, but also biased toward a buy opinion with the absence of sell opinion. As an alternative…
Abstract
The recommendation of the analyst report is not only limited to a small number of ratings, but also biased toward a buy opinion with the absence of sell opinion. As an alternative to this, this paper aims to extract analysts' textual opinions embedded in the report body through text analysis and examine the profitability of investment strategies. Analyst opinion about a firm is measured by calculating the frequency of positive and negative words in the report text through the Korean sentiment lexicon for finance (KOSELF). To verify the usefulness of textual opinions, the author constructs a calendar-time based portfolios by the analysts' textual opinion variable of each stock. When opinion level is used, investment strategy has no significant hedged portfolio return. However, hedged portfolio constructed by opinion change shows significant return of 0.117% per day (2.57% per month). In addition, the hedged return increases to 0.163% per day (3.59% per month) when the opening price is used instead of closing price. This study show that the analysts’ opinion extracted from text analysis contains more detailed spectrum than recommendation and investment strategies using them give significant returns.
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The purpose of this paper is to examine the performance of portfolios that are constructed based on environmental, social and governance (ESG) scores and consist of stocks located…
Abstract
Purpose
The purpose of this paper is to examine the performance of portfolios that are constructed based on environmental, social and governance (ESG) scores and consist of stocks located in Europe and Turkey.
Design/methodology/approach
In order to form the portfolios, firstly all stocks are ranked in a descending way based on ESG-based (ESG, environmental, social and governance) scores, separately. Then, 10% of stocks with the highest scores are included in the “Top” portfolio and 10% of stocks with the lowest scores are included in “Bottom” portfolio and totally performance of eight portfolios are investigated. Finally, capital asset pricing model (CAPM) and Fama-French three-factor model are employed as performance measurement benchmarks.
Findings
Results obtained from CAPM regression show that using ESG-based scores two portfolios underperform the market index. The results of the three-factor model provide that performances of Bottom ESG and Bottom GOV portfolios outperform the market excess return by 0.57% and 0.53%. The overall findings of this paper indicate that there is no relationship between socially responsible investment (SRI) and portfolio performance. These findings are in line with the efficient market hypothesis which indicates all information is reflected in prices.
Originality/value
The aim of the study is to provide insight on the question of “whether SRI has any effect on the portfolio performance”. As far as the literature review is concerned it is seen that this study provide additional insight by utilizing a longer time span together with data from numerous markets.
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Iuliia Naidenova, Petr Parshakov, Marina Zavertiaeva and Eduardo Tomé
– This paper aims to explore whether individual intellectual capital of a fund manager allows mutual fund to outperform market.
Abstract
Purpose
This paper aims to explore whether individual intellectual capital of a fund manager allows mutual fund to outperform market.
Design/methodology/approach
The sample includes 85 Russian equity funds for the period of 2013. First, Jensen’s alpha for each fund has been calculated, and then cross-sectional regression analysis has been used. While only a part of fund managers publish biographic sketches, the authors use the Heckman procedure to control for self-selection issues.
Findings
The results support the idea that the individual characteristics indicate the possibility to earn abnormal alpha. Managers with economic education and with Moscow education perform better than others. Relationship between both fund performance measures and manager’s experience has inverted U-shape. Jensen’s alpha reaches its highest level at the point of 9 years, whereas beta – at 10 years of manager’s experience.
Research limitations/implications
Investigation can be improved by including more variables that influence the disclosure of managers’ personal information, for example, by conducting surveys. Additionally, cross-sectional data restrict the analysis.
Practical implications
The discovered characteristics of managers’ intellectual capital can be used as additional screening tool for the investor who is deciding on mutual fund choice in Russia. While individual intellectual capital is observable and more persistent in time in comparison with the past fund performance, such tool allows better decision-making.
Originality/value
This is the first paper that explores which characteristics of Russian fund managers are connected with higher abnormal return (measured by Jensen’s alpha) and risk (beta) of mutual funds.
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Jana Hili, Desmond Pace and Simon Grima
The uncertainty as to whether investments in riskier and less efficient markets allow managers to ‘beat the market’ remains a question to which answers are required. Accordingly…
Abstract
Purpose
The uncertainty as to whether investments in riskier and less efficient markets allow managers to ‘beat the market’ remains a question to which answers are required. Accordingly, the purpose of this chapter is to offer new insights on portfolios of the US, European and Emerging Market (‘EM’) domiciled equity mutual funds whose objectives are the investment in emerging economies, and specifically analyses two main issues: alpha generation and the influence of the funds’ characteristics on their risk-adjusted performance.
Methodology/approach
The dataset is made up a survivorship-bias controlled sample of 137 equity funds over the period January 2004 to December 2014, which are then grouped into equally weighted portfolios according to the scheme’s origin. The Jensen’s (1968) Single-Factor model along with the Fama and French’s (1993) and Carhart’s (1997) multifactor models are employed to authenticate results and answer both research questions.
Findings
Research analysis reveals that EM exposed fund managers fail to collectively outperform the market. It thereby offers ground to believe that the emerging world is very close to being efficient, proving that the Efficient Market Hypothesis (‘EMH’) ideal exists in this scenario where market inefficiency might only be a perception of market participants as any apparent opportunity to achieve above-average returns is speedily snapped up by very active managers. Overall these managers take a conservative approach to portfolio construction, whereby they are more unperturbed investing in large cap equity funds so as to lessen somewhat the exposure towards risks associated with liquidity, stability and volatility.
Furthermore, the findings show that large-sized equity portfolios have the lead over the medium and small-sized competitors, whilst the high cost and mature collective investment vehicles enjoy an alpha which although is negative is superior to their peers. The riskiest funds generated the lowest alpha, and thereby produced doubts as to whether investors should accept a higher risk for the hope of earning higher returns, at least when aiming to gain an exposure into the emerging world.
Originality/value
Mutual fund performance is not an innovative topic so to speak. Nonetheless, researchers and academia have centred their efforts on appraising the behaviour of fund managers domiciled primarily in developed and more efficient economics, leaving the emerging region highly uncovered in this respect. This study, therefore aims at crafting meaningful contributions to the literature as well as to the practical perspective.
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