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1 – 10 of over 1000Farrukh 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…
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.
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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…
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.
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Priya Malhotra and Pankaj Sinha
Mutual funds are the second most preferred investment option in India and have garnered considerable research interest. The focus of Indian studies thus far has been restricted to…
Abstract
Purpose
Mutual funds are the second most preferred investment option in India and have garnered considerable research interest. The focus of Indian studies thus far has been restricted to the bottom-up approach of investing which rewards a fund manager for picking winner stocks and generates superior returns. While changing portfolio allocation as per varying macro-trends has been instrumental in generating superior returns, it has not been given the desired attention. This study addresses this important research gap.
Design/methodology/approach
The authors analyze the industry selection ability of the fund manager on a robust sample by decomposing alpha into alpha due to industry selection and alpha attributable to stock selection. Alpha estimates are computed on a robust sample of 34 open-ended Indian equity mutual funds for a 10-year duration 2011–2020 using three base models of asset pricing – single-factor, four-factor and five-factor alpha under panel data methodology.
Findings
The study leads us to four major findings. One, industry selection explains more than two-fifth of the alpha both in cross-section and time series of returns; two, industry selection exhibits persistence for more than four quarters across asset pricing model; third, younger funds have level playing when alpha from picking right industries is concerned; four, broad industry allocation continues to explain superior returns as sector allocation undergoes consolidation during ongoing COVID-19 pandemic and funds increase exposure to defensive stocks, consistent with folio allocations as per macroeconomic conditions.
Research limitations/implications
The authors find strong evidence of persistence in the case of alpha attributable to the industry selection component, and the findings are consistent with the persistence results reported in the empirical literature. While some funds excel in stock-picking skills and others excel in picking the right industries, both skills together make for winner funds that attract larger investor flows as investors chase superior performance. The authors also find no evidence of diseconomies of scale in the case of industry allocation alpha generated by the fund managers.
Practical implications
The results suggest a fresh approach for investors while making mutual fund investment decisions; the investors can achieve superior returns by assessing industry selection skills as it tends to provide a more holistic picture concerning a perennial question – why some funds outperform and continue to contribute to investor's wealth?
Social implications
Mutual funds have become a favored investment option for Indian investors more so as a disciplined investment option owing to dismal financial literacy rates. The study throws light on a relatively unaddressed dimension of choosing winner funds. The significance of right sector allocation assumed even more significance with the onset of the pandemic which lends further credence to the findings of the study.
Originality/value
Research has been conducted on secondary data extracted from a well-cited database for Indian mutual funds. Empirical analysis and conclusion drawn are based on authentic statistical analysis and adds to the existing literature.
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Halil Kiymaz and Koray D. Simsek
The purpose of this paper is to examine the performance of US mutual funds that invest primarily in emerging market equities and bonds.
Abstract
Purpose
The purpose of this paper is to examine the performance of US mutual funds that invest primarily in emerging market equities and bonds.
Design/methodology/approach
The study adopts the Morningstar classification of mutual funds and uses the Lipper US Mutual Fund Database through FactSet to obtain monthly returns and various metrics for emerging market equity and bond mutual funds covering the period from January 2000 to May 2017. Several descriptive statistics for these funds are reported as well as various risk-adjusted performance measures. Alphas are computed for different sub-periods using different factor models to mitigate potential biases.
Findings
The results show that diversified emerging market funds generate some significant alphas for their investors during the study period. Emerging market bond funds, on the other hand, do not provide any significant positive alphas; mostly alphas are negative. An analysis of sub-period performance suggests that these funds do not consistently provide excess returns, showing great variations from one period to another.
Originality/value
The emerging market funds provide US investors with an alternative source of exposure for their portfolios. Emerging markets differ from developed markets on a wide range of market and economic characteristics, including size, liquidity, and regulation. This study contributes to the scarce literature on these types of funds and provides a comprehensive performance assessment against various benchmarks during a period that encompasses significant bear and bull markets across the world.
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Richard Danquah and Baorong Yu
The study assess the selection ability and market timing skills of mutual fund and unit trust managers in Ghana.
Abstract
Purpose
The study assess the selection ability and market timing skills of mutual fund and unit trust managers in Ghana.
Design/methodology/approach
The study uses an improved survivorship bias-free dataset of yearly after-fee returns of all mutual funds and unit trusts operating in Ghana from January 2011 to December 2019, cumulating in nine years of quantitative fund data. The authors assess Mutual funds and Unit trusts that ever existed, “alive” or “dead,” over the sample period in the study. The authors construct factor loadings to enable the application of multifactor models in the analysis. The authors apply the unconditional versions of the Jensen alpha, Fama-French three-factor, and Carhart four-factor models to determine the selection ability and market timing skills of 32 mutual funds and 17 unit trusts. The authors deploy HAC-consistent robust standard errors to the OLS estimations to subdue the effect of heterogeneity and autocorrelation.
Findings
The results indicate that, on average, mutual funds and unit trust managers possess market timing skills but no selection ability. When the results are decomposed into fund types, fixed-income and balanced mutual fund managers possess selection ability and market timing skills.
Originality/value
To the authors' best knowledge, this study is the earliest to examine the selection ability and market timing skills of both mutual fund and unit trust managers in Sub-Saharan Africa (SSA). It is also the earliest to construct factor loadings for the Ghana stock market.
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Jun Gao, Niall O’Sullivan and Meadhbh Sherman
The Chinese fund market has witnessed significant developments in recent years. However, although there has been a range of studies assessing fund performance in developed…
Abstract
Purpose
The Chinese fund market has witnessed significant developments in recent years. However, although there has been a range of studies assessing fund performance in developed industries, the rapidly developing fund industry in China has received very little attention. This study aims to examine the performance of open-end securities investment funds investing in Chinese domestic equity during the period May 2003 to September 2020. Specifically, applying a non-parametric bootstrap methodology from the literature on fund performance, the authors investigate the role of skill versus luck in this rapidly evolving investment funds industry.
Design/methodology/approach
This study evaluates the performance of Chinese equity securities investment funds from 2003–2020 using a bootstrap methodology to distinguish skill from luck in performance. The authors consider unconditional and conditional performance models.
Findings
The bootstrap methodology incorporates non-normality in the idiosyncratic risk of fund returns, which is a major drawback in “conventional” performance statistics. The evidence does not support the existence of “genuine” skilled fund managers. In addition, it indicates that poor performance is mainly attributable to bad stock picking skills.
Practical implications
The authors find that the top-ranked funds with positive abnormal performance are attributed to “good luck” not “good skill” while the negative abnormal performance of bottom funds is mainly due to “bad skill.” Therefore, sensible advice for most Chinese equity investors would be against trying to “pick winners funds” among Chinese securities investment funds but it would be recommended to avoid holding “losers.” At the present time, investors should consider other types of funds, such as index/tracker funds with lower transactions. In addition, less risk-averse investors may consider Chinese hedge funds [Zhao (2012)] or exchange-traded fund [Han (2012)].
Originality/value
The paper makes several contributions to the literature. First, the authors examine a wide range (over 50) of risk-adjusted performance models, which account for both unconditional and conditional risk factors. The authors also control for the profitability and investment risks in Fama and French (2015). Second, the authors select the “best-fit” model across all risk-adjusted models examined and a single “best-fit” model from each of the three classes. Therefore, the bootstrap analysis, which is mainly based on the selected best-fit models, is more precise and robust. Third, the authors reduce the possibility that findings may be sample-period specific or may be a survivor (upward) biased. Fourth, the authors consider further analysis based on sub-periods and compare fund performance in different market conditions to provide more implications to investors and practitioners. Fifth, the authors carry out extensive robustness checks and show that the findings are robust in relation to different minimum fund histories and serial correlation and heteroscedasticity adjustments. Sixth, the authors use higher frequency weekly data to improve statistical estimation.
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Joseph Falzon and Elaine Bonnici
This paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European…
Abstract
Purpose
This paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European product designed to protect the most vulnerable of investors, UCITS funds.
Design/methodology/approach
This paper builds on 128 time-series regressions using various factor models to analyse the risk-return relationship of 242 Islamic and UCITS funds relative to a market benchmark, over a 10-year period starting January 2006, to capture severe bear and bull market conditions.
Findings
Islamic funds do not face a competitive disadvantage arising from their strict compliance with Sharīʿah principles, and their performance and investment style is relatively similar to UCITS schemes.
Practical implications
Islamic funds represent a low risk investment due to their very mild betas. Therefore, when forming part of a diversified portfolio, they can act as a hedging tool against adverse market movements.
Social implications
Muslim investors are not punished relative to conventional retail investors when following their own beliefs. Other investors can consider Islamic funds in their portfolio allocation, especially those who seek socially and ethically responsible investments.
Originality/value
This paper fills a lacuna in the existing literature, because the sample is made up of Islamic funds established worldwide and includes not only equity, but also fixed income and mixed allocation funds.
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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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Luis Otero-González, Pablo Durán-Santomil, Rubén Lado-Sestayo and Milagros Vivel-Búa
This paper analyses whether the active management and the fundamentals of the pension fund allow products that beat their peers to be identified in terms of risk-adjusted…
Abstract
Purpose
This paper analyses whether the active management and the fundamentals of the pension fund allow products that beat their peers to be identified in terms of risk-adjusted performance.
Design/methodology/approach
The sample is composed of all the pension funds active in the period 2000 to 2017 investing in the Eurozone. What this means is that a greater similarity is guaranteed in terms of benchmark, assets available for investment and currency. All the data have been retrieved from the Morningstar Direct database.
Findings
The paper reveals that the degree of concentration and value for money are important determinants of performance. In this sense, the strategies of investing in concentrated portfolios that differ from the benchmark and with undervalued assets in terms of price earnings ratio (PER)-return on assets (ROA) achieve better results.
Originality/value
This is one of the few papers that shows the effect of active management and value investing strategies’ on the performance of pension funds.
研究目的
本文旨在分析、我們能否根據退休基金的積極管理及其基本原理, 找到就風險調整表現而言之最優勝產品.
研究設計/方法
我們的樣本包括於2000年至2017年期間活躍於歐元區內投資活動的所有退休基金。這意味著、樣本確保了相關之退休基金就基準、可供投資的資產及貨幣而言、均擁有較大的相似性。所有數據均從晨星基金資料庫檢索得來的。.
研究結果
本文顯示、集中程度和價值比率是決定表現的重要因素。在這個意義上說,如投資在與基準不同的及附有就本益比 – 資產收益率 (PER - ROA) 而言被低估的資產的那些集中投資組合上, 這會是效果較佳的策略.
研究的原創性
探討積極管理和價值投資策略如何影響退休基金表現的學術研究為數不多, 本文乃屬這類研究。.
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Kimberly Gleason, Yezen H. Kannan and Christian Rauch
This paper aims to explain the fundraising and valuation processes of startups and discuss the conflicts of interest between entrepreneurs, venture capital (VC) firms and…
Abstract
Purpose
This paper aims to explain the fundraising and valuation processes of startups and discuss the conflicts of interest between entrepreneurs, venture capital (VC) firms and stakeholders in the context of startup corporate governance. Further, this paper uses the examples of WeWork and Zenefits to explain how a failure of stakeholders to demand an external audit from an independent accounting firm in early stages of funding led to an opportunity for fraud.
Design/methodology/approach
The methodology used is a literature review and analysis of startup valuation combined with the Fraud Triangle Theory. This paper also provides a discussion of WeWork and Zenefits, both highly visible examples of startup fraud, and explores an increased role for independent external auditors in fraud risk mitigation on behalf of stakeholders prior to an initial public offering (IPO).
Findings
This paper documents a number of fraud risks posed by the “fake it till you make it” ethos and investor behavior and pricing in the world of entrepreneurial finance and VC, which could be mitigated by a greater awareness of startup stakeholders of the value of an external audit performed by an independent accounting firm prior to an IPO.
Research limitations/implications
An implication of this paper is that regulators should consider greater oversight of the startup financing process and potentially take steps to facilitate greater independence of participants in the IPO process.
Practical implications
Given the potential conflicts of interest between VC firms, investment banks and startup founders, the investors at the time of an IPO may be exposed to the risk that the shares of the IPO firms are overvalued at offering.
Social implications
This study demonstrates how startup practices can be extended to the Fraud Triangle and issue a call to action for the accounting profession to take a greater role in protecting the public from startup fraud. This study then offers recommendations for regulators and standards entities.
Originality/value
There are few academic papers in the financial crime literature that link the valuation and culture of startup firms with fraud risk. This study provides a concise explanation of the process of valuation for startups and highlights the considerations for stakeholders in assessing fraud risk. In addition, this study documents an emerging role for auditors as stewards of proper valuation for pre-IPO firms.
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