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Open Access
Article
Publication date: 30 April 2020

Farrukh Naveed, Idrees Khawaja and Lubna Maroof

This study aims to comparatively analyze the systematic, idiosyncratic and downside risk exposure of both Islamic and conventional funds in Pakistan to see which of the funds has…

4362

Abstract

Purpose

This study aims to comparatively analyze the systematic, idiosyncratic and downside risk exposure of both Islamic and conventional funds in Pakistan to see which of the funds has higher risk exposure.

Design/methodology/approach

The study analyzes different types of risks involved in both Islamic and conventional funds for the period from 2009 to 2016 by using different risk measures. For systematic and idiosyncratic risk single factor CAPM and multifactor models such as Fama French three factors model and Carhart four factors model are used. For downside risk analysis different measures such as downside beta, relative beta, value at risk and expected short fall are used.

Findings

The study finds that Islamic funds have lower risk exposure (including total, systematic, idiosyncratic and downside risk) compared with their conventional counterparts in most of the sample years, and hence, making them appear more attractive for investment especially for Sharīʿah-compliant investors preferring low risk preferences.

Practical implications

As this study shows, Islamic mutual funds exhibit lower risk exposure than their conventional counterparts so investors with lower risk preferences can invest in these kinds of funds. In this way, this research provides the input to the individual investors (especially Sharīʿah-compliant investors who want to avoid interest based investment) to help them with their investment decisions as they can make a more diversified portfolio by considering Islamic funds as a mean for reducing the risk exposure.

Originality/value

To the best of the author’s knowledge, this study is the first attempt at world level in looking at the comparative risk analysis of various types of the risks as follows: systematic, idiosyncratic and downside risk, for both Islamic and conventional funds, and thus, provides significant contribution in the literature of mutual funds.

Details

ISRA International Journal of Islamic Finance, vol. 12 no. 1
Type: Research Article
ISSN: 0128-1976

Keywords

Open Access
Article
Publication date: 5 April 2022

Matti Turtiainen, Jani Saastamoinen, Niko Suhonen and Tuomo Kainulainen

In the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor…

1160

Abstract

Purpose

In the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor Information Document (UCITS KIID) for investors. This papers uses archival data from the Finnish mutual fund market to test how the regulation's information disclosure requirements concerning past performance, risk and fund fees are associated with mutual fund flows.

Design/methodology/approach

The study uses archival data on the mutual funds market in Finland to test how the regulation relating to retail investors' information requirements is associated with mutual fund flows.

Findings

Our findings suggest that the UCITS KIID predicts retail investors' fund flows. While past performance is associated with fund flows throughout the observation period, retail investors appear to have become more sensitive to fund fees and invest in less risky funds following the adoption of the UCITS IV period.

Practical implications

Information relating to fund fees and risk appears to be relevant to retail investors, which should be acknowledged in future iterations of short-form disclosure and in mutual fund marketing.

Originality/value

This paper is the first to assess the significance of KIID in actual market environment.

Details

International Journal of Bank Marketing, vol. 40 no. 4
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 30 December 2020

Caddie Putnam Rankin

This empirical study seeks to understand how mutual fund firms interpret conflicting pressures to conform or differentiate in the context of corporate social responsibility (CSR)…

Abstract

Purpose

This empirical study seeks to understand how mutual fund firms interpret conflicting pressures to conform or differentiate in the context of corporate social responsibility (CSR). Research suggests that organizations engage in practices that conform to industry standards in order to be seen as legitimate members of their industry. Other studies suggest that organizations differentiate themselves in order to compete and outperform their rivals. Pressures for organizational conformity and differentiation are explored in two types of organizations in the mutual fund industry: socially responsible investment (SRI) and non-SRI firms.

Design/methodology/approach

The research is based on qualitative in-depth interviews with twenty-six mutual funds.

Findings

The analysis revealed that pressures for conformity and differentiation were salient among mutual fund executives but emphasized differently for the two types of mutual funds.

Originality/value

The study concluded by suggesting SRI firms use both strategies of conformity and differentiation to amplify the message that they adhere to the values of CSR.

Details

Qualitative Research in Organizations and Management: An International Journal, vol. 16 no. 3/4
Type: Research Article
ISSN: 1746-5648

Keywords

Article
Publication date: 28 October 2008

Hossein Varamini and Svetlana Kalash

The main purpose of this study is to use the Sharpe Ratio to test the efficient market hypothesis for different market capitalization and investment styles of mutual funds. The…

Abstract

The main purpose of this study is to use the Sharpe Ratio to test the efficient market hypothesis for different market capitalization and investment styles of mutual funds. The results of the study for the entire period of 1994‐2007 as well as the two subperiods (1994‐1999 and 2000‐2007) indicate that small cap funds have provided the highest risk‐adjusted return for the entire period whereas growth funds have exhibited lower returns. The findings, therefore, suggest that the mutual funds market is not always efficient, which makes it possible for an investor or a mutual fund manager to earn excess return on a risk‐adjusted basis.

Details

American Journal of Business, vol. 23 no. 2
Type: Research Article
ISSN: 1935-5181

Keywords

Article
Publication date: 16 May 2016

Mariluz Alverio and Javier Rodríguez

The purpose of this study is to focus on mutual funds’ valuations of their US private firm holdings. According to extant academic literature, mutual funds’ boards of directors…

Abstract

Purpose

The purpose of this study is to focus on mutual funds’ valuations of their US private firm holdings. According to extant academic literature, mutual funds’ boards of directors should assign prices to their private firm stocks based on their own determination of fair value.

Design/methodology/approach

This study investigates fluctuations in valuations of mutual funds holdings of private firms, and whether or not mutual funds managers are able to pick privately held firms that eventually undergo an initial public offer.

Findings

The study shows that private firm common stocks’ prices fluctuate much more than preferred stocks’; however, as expected, preferred stock is the most selected security type. This study also investigates these firms’ propensity to undergo an initial public offering (IPO). Results show that mutual funds allocated most of their capital to US private sector firms that underwent an initial public offering. Logit model results reveal that fund managers are able to pick privately held firms that will go public.

Research limitations/implications

Due to data limitations, the authors’ analysis does not control for venture capital ownership; an issue the authors plan to address in the future.

Originality/value

Though, research in this area may exist, the authors have not found academic literature related to holdings of private firms by mutual funds, pricing by funds’ boards of directors or the motives for such investments.

Details

The Journal of Risk Finance, vol. 17 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 10 April 2023

Surachai Chancharat and Arisa Phadungviang

This study groups mutual funds using k-means clustering analysis and compares the k-means clustering process with existing clustering techniques using mutual fund data for equity…

Abstract

This study groups mutual funds using k-means clustering analysis and compares the k-means clustering process with existing clustering techniques using mutual fund data for equity funds, general fixed-income funds, and balanced open-end mutual funds rated by the Association of Investment Management Companies. Data are from January 2016 to December 2020 for 60 months and includes information on prices, risks, and investment policies. The sample for this study comprises 173 funds from 10 asset management companies with the highest net assets. The tool used for analysis is the k-means technique using a statistical package set for k = 3. The funds can be divided into three groups: Group 1 has 5 mutual funds (2.89%), Group 2 has 24 mutual funds (13.87%), and Group 3 has a total of 144 mutual funds (83.24%). In Group 1, four of the five mutual funds are equity funds with a track record of beating the market, and fund managers have good market timing skills. Moreover, the efficiency of fund grouping using the k-means technique was compared with the existing grouping with close results at 57.23%. This work provides a methodology to obtain a better categorization of mutual funds by using k-means clustering, allowing the investors to know how mutual funds are. This categorization is very useful for improving the formulation of mutual funds, with the goal of further optimizing investment.

Details

Comparative Analysis of Trade and Finance in Emerging Economies
Type: Book
ISBN: 978-1-80455-758-7

Keywords

Book part
Publication date: 26 February 2016

Desmond Pace, Jana Hili and Simon Grima

In the build-up of an investment decision, the existence of both active and passive investment vehicles triggers a puzzle for investors. Indeed the confrontation between active…

Abstract

Purpose

In the build-up of an investment decision, the existence of both active and passive investment vehicles triggers a puzzle for investors. Indeed the confrontation between active and index replication equity funds in terms of risk-adjusted performance and alpha generation has been a bone of contention since the inception of these investment structures. Accordingly, the objective of this chapter is to distinctly underscore whether an investor should be concerned in choosing between active and diverse passive investment structures.

Methodology/approach

The survivorship bias-free dataset consists of 776 equity funds which are domiciled either in America or Europe, and are likewise exposed to the equity markets of the same regions. In addition to geographical segmentation, equity funds are also categorised by structure and management type, specifically actively managed mutual funds, index mutual funds and passive exchange traded funds (‘ETFs’). This classification leads to the analysis of monthly net asset values (‘NAV’) of 12 distinct equally weighted portfolios, with a time horizon ranging from January 2004 to December 2014. Accordingly, the risk-adjusted performance of the equally weighted equity funds’ portfolios is examined by the application of mainstream single-factor and multi-factor asset pricing models namely Capital Asset Pricing Model (Fama, 1968; Fama & Macbeth, 1973; Lintner, 1965; Mossin, 1966; Sharpe, 1964; Treynor, 1961), Fama French Three-Factor (1993) and Carhart Four-Factor (1997).

Findings

Solely examination of monthly NAVs for a 10-year horizon suggests that active management is equivalent to index replication in terms of risk-adjusted returns. This prompts investors to be neutral gross of fees, yet when considering all transaction costs it is a distinct story. The relatively heftier fees charged by active management, predominantly initial fees, appear to revoke any outperformance in excess of the market portfolio, ensuing in a Fool’s Errand Hypothesis. Moreover, both active and index mutual funds’ performance may indeed be lower if financial advisors or distributors of equity funds charge additional fees over and above the fund houses’ expense ratios, putting the latter investment vehicles at a significant handicap vis-à-vis passive low-cost ETFs. This chapter urges investors to concentrate on expense ratios and other transaction costs rather than solely past returns, by accessing the cheapest available vehicle for each investment objective. Put simply, the general investor should retreat from portfolio management and instead access the market portfolio using low-cost index replication structures via an execution-only approach.

Originality/value

The battle among actively managed and index replication equity funds in terms of risk-adjusted performance and alpha generation has been a grey area since the inception of mutual funds. The interest in the subject constantly lightens up as fresh instruments infiltrate financial markets. Indeed the mutual fund puzzle (Gruber, 1996) together with the enhanced growth of ETFs has again rejuvenated the active versus passive debate, making it worth a detailed analysis especially for the benefit of investors who confront a dilemma in choosing between the two management styles.

Details

Contemporary Issues in Bank Financial Management
Type: Book
ISBN: 978-1-78635-000-8

Keywords

Book part
Publication date: 8 August 2022

D. K. Malhotra, Rashmi Malhotra and Robert L. Nydick

Mutual fund ratings are extremely popular among mutual fund investors, with over 8,000 mutual funds currently available to them and a huge increase in privately managed retirement…

Abstract

Mutual fund ratings are extremely popular among mutual fund investors, with over 8,000 mutual funds currently available to them and a huge increase in privately managed retirement accounts. Morningstar introduced the star-rating system to mutual funds, grading them on a range of one to five stars, with one star being the lowest and five stars being the highest. Because of its simplicity and resemblance to the ratings of so many other products we buy, the star-rating system has become an intrinsic element of mutual fund jargon. Morningstar experts award 5-star funds a gold, silver, or bronze medal ranking based on their instinctual analysis. This research investigates whether all gold-medal winning five-star mutual funds are equally efficient in terms of risk-adjusted performance. When total return, adjusted expense ratio, standard deviation, tax cost ratio, Sharpe ratio, and fund alpha are all considered, we discovered that not all “gold medal” mutual funds are equally efficient. Investors should take care even among “gold medal” funds since some are more efficient than others.

Details

Applications of Management Science
Type: Book
ISBN: 978-1-80071-552-3

Keywords

Abstract

Details

The Savvy Investor's Guide to Avoiding Pitfalls, Frauds, and Scams
Type: Book
ISBN: 978-1-78973-559-8

Article
Publication date: 9 November 2015

Javier Rodriguez

This study aims to examine the cross-sectional variation in risk of US-based micro-cap open-end mutual funds. Micro-cap mutual funds allow investors to access very low-priced…

2431

Abstract

Purpose

This study aims to examine the cross-sectional variation in risk of US-based micro-cap open-end mutual funds. Micro-cap mutual funds allow investors to access very low-priced stocks issued by the smallest of companies. The stock of these firms is usually not traded in major exchanges, and their financial information is not readily available and, thus, regarded as risky investments.

Design/methodology/approach

The author examines the cross-sectional variation in risk and higher moments of US-based micro-cap mutual funds in comparison with that of small-cap and mid-cap mutual funds. Total, systematic and idiosyncratic risk metrics, along with higher moments, are estimated before, during and after the 2008 financial crisis.

Findings

The author finds that, indeed, based on total and idiosyncratic risk metrics, the sample of micro-cap funds is riskier than the size-matched samples of small-cap and mid-cap funds. The author also reports that the sample of micro-cap funds fail to generate higher excess returns than the less risky small-cap and mid-cap funds.

Originality/value

To the best of the author’s knowledge, this is the first time that the risk of small-cap mutual funds has been examined.

Details

Review of Accounting and Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

21 – 30 of over 29000