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1 – 10 of over 21000Jana 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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Zhongzhi (Lawrence) He, Martin Kusy, Deepak Singh and Samir Trabelsi
The Canadian mutual fund setting is unique in that two governance mechanisms – corporate and trust – coexist. This study empirically examines the impact of each mechanism on fund…
Abstract
The Canadian mutual fund setting is unique in that two governance mechanisms – corporate and trust – coexist. This study empirically examines the impact of each mechanism on fund fees and performance. We find that corporate class funds charge higher fees but deliver superior fee-adjusted returns than trust funds. We then analyze the impact of various board characteristics on fees and performance for corporate class funds. We find that a board with smaller size, CEO duality, and a higher percentage of independent directors is more likely to charge lower fees. In addition, smaller boards are strongly associated with higher fee-adjusted performance. Our study supports agency theory over stewardship theory and provides valuable guidelines for Canadian investors and regulatory agencies.
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Ioannis Tampakoudis, Nikolaos Kiosses and Konstantinos Petridis
The purpose of this study is to evaluate the performance of mutual funds during the COVID-19 pandemic with environmental, social and governance (ESG) criteria. The main research…
Abstract
Purpose
The purpose of this study is to evaluate the performance of mutual funds during the COVID-19 pandemic with environmental, social and governance (ESG) criteria. The main research question is whether mutual fund performance differs with respect to the level of the mutual fund’s ESG score.
Design/methodology/approach
The data set contains global fund data, and mutual fund performance is analyzed using two types of data envelopment analysis (DEA) models: the DEA portfolio index (DPEI) and the range direction measure (RDM) DEA. Propensity score matching and logistic regression are also applied.
Findings
The results reveal that: nonequity mutual funds present significantly higher performance compared to the performance of equity mutual funds; mutual funds with high ESG scores are associated with significantly higher performance compared to those with low to medium ESG scores; funds with high ESG scores experience higher performance irrespective of their type; and efficiency scores derived from the RDM DEA are significantly higher than those derived from the DPEI model.
Research limitations/implications
Investors, fund managers and market participants can benefit from the findings of this study and improve their investment decision-making process, including more sustainable funds in their portfolios. Regulators and policymakers should further promote or even require the inclusion of more sustainable investments in the financial products offered by institutional investors. The main limitation of the study is related to data availability regarding the ESG score of mutual funds.
Originality/value
To the best of the authors’ knowledge, this is the first study that provides robust evidence in support of a positive association between ESG scores and mutual fund performance during the pandemic-induced crisis applying a DEA methodology.
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Onur Arugaslan, Ed Edwards and Ajay Samant
This paper seeks to evaluate the risk‐adjusted performance of the largest US‐based equity mutual funds using rigorous analysis grounded in modern portfolio theory and present the…
Abstract
Purpose
This paper seeks to evaluate the risk‐adjusted performance of the largest US‐based equity mutual funds using rigorous analysis grounded in modern portfolio theory and present the results in a manner which is comprehensible to a lay investor.
Design/methodology/approach
This study evaluates the performance of the 20 largest US‐based mutual funds using risk‐adjusted returns during 1995‐2004. In particular, a relatively new risk‐adjusted performance measure by Modigliani and Modigliani is used to evaluate these equity funds. This study also utilizes a variation of the Sortino Ratio to account for downside risk.
Findings
The results show that the funds with the highest returns may lose their attractiveness once the degree of risk had been factored into the analysis. Conversely, some funds may look very attractive once their low risk is factored into their performance.
Research limitations/implications
Future researchers may want to investigate the effects of factors, such as fund manager, compensation, service fees, corporate governance metrics, and overweighting in risky industries on the performance of mutual funds.
Practical implications
The empirical evidence presented in this study can be used as input in decision making by investors who are exploring the possibility of participating in the stock market via large mutual funds, but are not sure of what selection criteria to employ.
Originality/value
The paper is one of the first studies that apply the new M2 measure to evaluate the performance of mutual funds. Various other performance metrics are also utilized including the Sharpe, Sortino, Treynor measures and Jensen's α.
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Zia-ur-Rehman Rao, Muhammad Zubair Tauni, Amjad Iqbal and Muhammad Umar
The purpose of this paper is to find whether Chinese equity funds outperform the market and do Chinese fund managers possess positive market timing ability. This study also aims…
Abstract
Purpose
The purpose of this paper is to find whether Chinese equity funds outperform the market and do Chinese fund managers possess positive market timing ability. This study also aims to investigate whether well-performing (worst) funds of last year continue to perform well (worst) in the following year.
Design/methodology/approach
Capital Asset Pricing Model and Carhart four-factor model are used for performance analysis, whereas for analyzing market timing ability, the Treynor and Mazuy (1966) and Henriksson and Merton (1981) models are applied. To investigate persistence in the performance of Chinese equity funds, all equity funds are divided, on the basis of performance in the past 12 months, into three equally weighted groups (high, middle and low) and then observed for next 12 months. After that, groups are again rebalanced according to their performance. This study uses a panel regression model for analysis.
Findings
Chinese equity funds are successful in providing higher than market returns, and fund managers possess positive market timing ability. The authors find that Chinese equity funds do not show persistence in performance as witnessed in developed markets. Well-performing funds (worst funds) of last year do not continue to provide higher (lower) return in the following year. Moreover, the authors detect positive relationship of fund size, age and expense ratio with the fund’s performance. Overall results suggest that emerging market equity funds show better performance than that of developed markets.
Practical implications
Investors are better off if they invest in equity funds instead of index funds, as results illustrate that equity funds outperformed the market. Further, the strategy of buying well-performing funds of last year and selling poorly performing funds of last year does not look very attractive in China. This study helps investors to understand the Chinese managed funds industry, and such an understanding is also helpful for fund managers and asset management companies who use performance information in marketing strategies.
Originality/value
This is the first study to investigate the performance persistence in Chinese equity funds and also contributes to the literature about the performance and market timing ability of equity funds. The study takes the sample of 520 equity funds for the period from 2004 to 2014, which includes a period of financial crisis of 2008.
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Rogér Otten and Mark Schweitzer
Outlines previous research on the mutual fund industry and compares the characteristics of the US and European mutual fund markets using the structure‐conduct‐performance…
Abstract
Outlines previous research on the mutual fund industry and compares the characteristics of the US and European mutual fund markets using the structure‐conduct‐performance paradigm. Shows that the European industry is smaller, with more funds and more emphasis on fixed income, with the UK and US having lower concentration ratios than mainland Europe; and the US a wider range of fees. Contrasts the use of different distribution channels and performance statistics; and uses 1991‐1997 data to compare actual stock market returns against benchmarks and between countries. Analyses this in detail and notes with surprise the European funds have a better average performance than US funds.
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Ann-Ngoc Nguyen, Muhammad Sadiq Shahid and David Kernohan
The purpose of this paper is to investigate the impact of investor confidence on mutual fund performance in two relatively vulnerable but leading emerging markets, India and…
Abstract
Purpose
The purpose of this paper is to investigate the impact of investor confidence on mutual fund performance in two relatively vulnerable but leading emerging markets, India and Pakistan.
Design/methodology/approach
A pooled ordinary least squared (OLS) model is used to look at two alternative measures of investor confidence and test for the relationship between investor confidence and mutual fund returns. To check the robustness of the findings, the authors also implement two-stage least squares and generalized method of moments techniques to control for unobserved heterogeneity, simultaneity and dynamic endogeneity problems in the regressors.
Findings
The paper finds that the returns of mutual funds are positively associated with investor confidence and an interaction effect exists between investor confidence and persistence in performance. The paper also confirms that returns from mutual funds are associated with different fund characteristics such as fund size, turnover, expense, liquidity, performance persistence and the fund’s age. These findings remain robust to alternative model specifications and measures of investor confidence.
Originality/value
While the previous literature mainly focuses on mutual fund characteristics and the macroeconomic determinants of mutual fund returns, this paper demonstrates that investor confidence plays an important role in determining mutual fund performance. The authors attribute this finding to two relatively unique features of the emerging markets in the study. A lack of awareness of mutual funds as being a low-cost investment vehicle and the interplay of cultural and behavioral changes have prevented investor’s savings from being channeled into investment products, away from gold or property.
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Hoa Thi Nguyen and Dung Thi Nguyet Nguyen
The purpose of this paper is to examine the determinants of mutual funds’ performance at both a country level and a fund level in Vietnam.
Abstract
Purpose
The purpose of this paper is to examine the determinants of mutual funds’ performance at both a country level and a fund level in Vietnam.
Design/methodology/approach
The different types of funds with more than three-year operation are selected to remove outliers of the stock market boom from 2015 to 2018. The data set includes 54 mutual funds operating during the period from 2008 until November 2018.
Findings
The research finds that there is a positive relationship between macroeconomics and mutual funds’ performance. Furthermore, country-level governance such as regulation effectiveness, political stability, economic growth and financial development has a positive correlation with mutual funds’ performance. However, the impact of fund-level factors is diverse with the no significant impact of board size on mutual fund’s performance, while passive funds perform better than active funds in Vietnam.
Practical implications
The research results suggest that investors should pay attention to the types of funds and operating expense when making an investment decision in mutual funds. There are some recommendations for both government policy-makers and the mutual fund industry that are likely to facilitate the development of this field in Vietnam.
Originality/value
The research contributes to the understanding of what are the factors that should be considered when investing in mutual funds.
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Marta Alvarez and Javier Rodríguez
The purpose of this paper is to examine the performance and diversification value of water-related funds. As pollution, climate change and accelerated population growth threaten…
Abstract
Purpose
The purpose of this paper is to examine the performance and diversification value of water-related funds. As pollution, climate change and accelerated population growth threaten water resources worldwide, such resources have become a sought-after asset. For most investors, it is impractical to physically hold water as part of a portfolio; therefore, an open question is how to better gain exposure to this asset. The authors propose a look at water-related mutual funds, an issue not found addressed in the literature. In addition to the investment potential of these funds, investors might be drawn to them as part of a more comprehensive socially responsible agenda.
Design/methodology/approach
In the present study, the authors identify and measure the risk-adjusted performance and diversification value of open-end funds dedicated to investments in water-related securities. Jensen’s alpha is used to measure risk-adjusted performance, whereas diversification value is examined by implementing a methodology widely used in the mutual fund literature.
Findings
Consistent with previous studies on the performance of ethical or socially responsible mutual funds, the authors found that their sample of water-related mutual funds neither outperform nor underperform two benchmarks. However, the authors also found that they offer potential diversification gains for international mutual funds’ portfolios.
Research limitations/implications
Open-end water-related mutual funds have only been recently created, and currently, very few funds are available to investors. These facts limit the sample size and the length of the return series examined.
Originality/value
The authors have not found a paper that examines the performance and diversification value of water-related mutual funds. These funds present themselves as a practical way for individual investors to gain exposure to the commodity of water.
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Swaminathan G. Badrinath and Stefano Gubellini
Glode provides theoretical and empirical evidence that, in aggregate, funds underperform during economic expansions and outperform during contractions. The authors find that this…
Abstract
Purpose
Glode provides theoretical and empirical evidence that, in aggregate, funds underperform during economic expansions and outperform during contractions. The authors find that this result is not robust to the more appropriate conditional CAPM and to alternative methods for estimating market states. The purpose of this paper is therefore to thoroughly analyze mutual fund performance across the business cycle by disaggregating funds into different investment objectives to determine which funds possess this cyclical performance and which do not.
Design/methodology/approach
In this paper, the authors employ a conditional asset pricing model that better captures the variations in the pricing kernel in different economic states. The empirical model adjusts for time‐variation in both risk (beta) and performance (alpha). The authors specify economic states using an ex‐ante measure, the expected market risk premium. This measure is continuous and better captures changing economic circumstances than the ex‐post, binary NBER cycle dates that are common in the mutual fund literature.
Findings
In this conditional framework, the authors find that recession protection is only offered by certain types of equity mutual funds. Managers of small‐cap and mid‐cap growth equity funds are able to deliver such state‐dependent performance but managers of value funds do not. In a comparison of active mutual funds with passive counterparts, it is found that both the stocks held by the small‐cap managers as well as their stewardship of the portfolio contribute to that performance.
Originality/value
Drawing from the recent asset pricing literature, the authors are the first to adapt an integrated conditional CAPM framework to examine the state‐dependent performance of mutual funds. Rather than report aggregate equity mutual fund performance, the authors provide an analysis for subsets of mutual funds separated by investment styles. Both managers of and investors in these funds will benefit from an understanding of how portfolio performance is impacted by changing economic conditions.
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