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Article
Publication date: 7 August 2017

Laura Fabregat-Aibar, Antonio Terceño and M. Glòria Barberà-Mariné

The purpose of this paper is to carry out a literature review to determine which variables have the greatest impact on the survival capacity of mutual funds, and if these…

Abstract

Purpose

The purpose of this paper is to carry out a literature review to determine which variables have the greatest impact on the survival capacity of mutual funds, and if these variables also have an influence on the various ways in which mutual funds disappear.

Design/methodology/approach

The authors carry out a systematic review of the literature on mutual funds and identify the main features that affect their capacity for survival.

Findings

The results show that most of the articles are based on data from the US market and that the two most studied variables are the return and the size of the fund. Furthermore, the relationship between the behaviour of variables and the disappearance of funds has mainly been analysed by comparing surviving and non-surviving funds, but without specifying the way in which they disappeared. Finally, the results show that there is no single methodology for examining the survival of funds.

Originality/value

In the financial literature, no previous literature review has focused on the factors that influence the survival capacity of mutual funds. The authors consider that this review will provide a broader and more realistic vision of the level of academic interest in this field and identify any gaps that exist in the literature available.

Details

International Journal of Managerial Finance, vol. 13 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 January 2009

George Comer, Norris Larrymore and Javier Rodriguez

The purpose of this paper is to examine the value of active fund management using a sample of hybrid mutual funds.

3229

Abstract

Purpose

The purpose of this paper is to examine the value of active fund management using a sample of hybrid mutual funds.

Design/methodology/approach

Instead of using traditional risk‐adjusted measures, the paper employs an alternative attribution return methodology where the actual monthly fund return is compared to the return that would have been earned by the indexing strategy that best reflects the fund's prior month allocation. Value is measured by defining a fund's attribution return as the difference between a fund's actual month t return and the return that would have been generated in month t by the indexing strategy that most closely approximates the fund's month t−1 portfolio allocation.

Findings

It is found that hybrid funds as a group do not add value and that this underperformance does not appear to be driven by the poor performance of non‐surviving funds. However, these funds perform significantly better than the style benchmark under weak vs strong stock market conditions. This performance difference between bull and bear market conditions suggests some hedge fund‐like downside protection that may offer a reason why investors choose these funds despite the funds’ average underperformance and despite their higher costs relative to index funds.

Originality/value

The contribution of this paper is twofold. First, it concentrates on hybrid mutual funds, which despite a surge in their interest over the last five years have attracted very little academic study. Second, in the implementation of its non‐traditional performance measure, it employed daily fund returns, stock market indices and bond market indices as opposed to the monthly or quarterly data used in other related studies.

Details

Managerial Finance, vol. 35 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 April 2014

Javier Rodríguez and Herminio Romero

The purpose of this paper is to examine the risk-adjusted performance of US-based global real estate mutual funds (GREMFs) with emphasis on their ability to manage their domestic…

467

Abstract

Purpose

The purpose of this paper is to examine the risk-adjusted performance of US-based global real estate mutual funds (GREMFs) with emphasis on their ability to manage their domestic and foreign portfolios exposures.

Design/methodology/approach

The paper applies common econometric measures of portfolio performance and implements a non-traditional methodology called attribution returns to measure forecasting ability. In this setting the paper compares the actual monthly fund return to what would have been earned by the set of indices that best reflects the fund's investment strategy during the previous month. Performance and forecasting ability is examined during two different time periods: 2001-2005 and 2006-2010.

Findings

It is found that global real estate fund managers outperform the market and show good forecasting ability during the 2001-2005 time period. Good forecasting ability translates to positive risk-adjusted performance, as attribution returns are positively correlated with α.

Originality/value

Despite the significant growth in the number of US-based GREMFs and the ample coverage these funds receive in the popular press, few studies are solely devoted to the examination of these funds. In this study the paper empirically examines the ability of fund managers to successfully forecast country/regional political and economic conditions as well as fluctuations in currency exchanges rates brought about by the changes they made to their portfolios’ domestic and foreign exposures.

Details

International Journal of Managerial Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 21 June 2013

Mohammad Reza Tavakoli Baghdadabad and Paskalis Glabadanidis

This paper aims to evaluate the risk‐adjusted performance of the management styles of Malaysian mutual funds using nine modified performance evaluation measures generated by the…

1297

Abstract

Purpose

This paper aims to evaluate the risk‐adjusted performance of the management styles of Malaysian mutual funds using nine modified performance evaluation measures generated by the maximum drawdown risk measure (M‐DRM) based on the modern portfolio theory. The purpose is to report the findings in a manner which is realizable by the average investors and portfolio managers.

Design/methodology/approach

This paper evaluates the performance of more than 400 Malaysian mutual funds using risk‐adjusted returns over the two sub‐periods of 2000‐2005 and 2006‐2011. The M‐DRM, as a different measure from downside risk, is applied to improve nine risk‐adjusted performance measures of Sortino, Treynor, M‐squared, Jensen's alpha, information ratio (IR), MSR, upside partial ration (UPR), FPI, and leverage factor. It proposes a new single‐factor model to test the maximum drawdown beta and alpha in the M‐DRM framework.

Findings

The evidence clearly indicates that the replacement framework in terms of MDB, the maximum drawdown beta, and the maximum drawdown CAPM can be replaced by the conventional frameworks in terms of MVB, beta, and the CAPM and also MSB, downside beta, and D‐CAPM for modifying nine performance evaluation measures from the management styles of Malaysian mutual funds.

Practical implications

The research evidence reported in this paper can be applied as input in the process of decision making by small and average investors and portfolio managers who are seeking the possibility of participating in the global stock market through mutual funds.

Originality/value

This paper is the first study to estimate a new regression model in the M‐DRM framework to evaluate the performance of Malaysian mutual funds. In addition, it proposes nine modified performance evaluation measures in the M‐DRM framework for the first time.

Details

International Journal of Managerial Finance, vol. 9 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Open Access
Article
Publication date: 28 October 2021

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…

2099

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.

Details

Review of Accounting and Finance, vol. 20 no. 5
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 20 July 2015

Mohammad Reza Tavakoli Baghdadabad and Masood Fooladi

The purpose of this paper is to provide the modified measures of risk-adjusted performance evaluation of Malaysian mutual funds using the downside risk concepts, and promote the…

Abstract

Purpose

The purpose of this paper is to provide the modified measures of risk-adjusted performance evaluation of Malaysian mutual funds using the downside risk concepts, and promote the ability of managers and investors in making logical decisions under the market asymmetry condition.

Design/methodology/approach

This study focusses on the performance evaluation of Malaysian mutual funds using eight modified measures of Sharpe, Treynor, M2, Jensen’s α, information ratio (IR), MSR, SPI, and leverage factor. These modified measures use the downside systematic risk and semi-standard deviation instead of systematic risk and conventional standard deviation, respectively, to evaluate the performance of Malaysian mutual funds over the period 2000-2011.

Findings

The results indicate that the conventional measures of performance evaluation do not have a crucial influence on the relative evaluation of mutual funds. Three modified measures of Sharpe, Treynor, and M2 have a high correlation with the conventional Sharpe measure and can be used instead of the conventional Sharpe measure. Since, two modified measures of Treynor and M2 display a high rank correlation coefficient with the conventional Treynor measure, they can be replaced with this traditional measure. In addition, two modified IR and MSR measures along with the modified SPI and conventional SPI show very high rank correlation coefficients in relation to each other. The results also document a modified leverage factor less than one for all funds. It can be concluded that the strategy of un-levering the investor’s holding must be followed.

Practical implications

The empirical evidence of this study can be utilized as inputs in the process of decision-making by different types of investors who are interested in participating especially in Malaysian stock market and generally in global stock market under the market asymmetry condition.

Originality/value

The contribution of this study is to modify five measures of M2, IR, MSR, FPI, and leverage factor in the downside risk framework which is a work on a rather under-researched area.

Details

International Journal of Emerging Markets, vol. 10 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 27 May 2014

Javier Rodriguez

– The paper aims to empirically examine the forecasting ability of US-based world mutual funds during the 2001-2007 time period.

436

Abstract

Purpose

The paper aims to empirically examine the forecasting ability of US-based world mutual funds during the 2001-2007 time period.

Design/methodology/approach

World mutual funds are treated as portfolios composed of two sets of securities, i.e. domestic and foreign and two methodologies are used to measure forecasting ability: domestic differential exposure and assertion rates. Domestic differential exposure is based on the difference between each fund exposure to the domestic market when it is the outperforming market and the portfolio exposure to the domestic market when the foreign market is outperforming. Similar to the differential exposure, assertion rates measure the ability of fund managers to pick, on a monthly basis, an outperforming market.

Findings

Although changing economic conditions in both domestic and foreign markets provided plenty of opportunities to outperform market benchmarks, the results of two empirical tests reveal that fund managers fail to effectively manage their exposure to both markets. Some evidence of good forecasting ability is found when funds are examined on a yearly basis.

Originality/value

This study provides the first implementation of both methodologies: domestic differential exposure and assertion rates, to examine global funds.

Details

Studies in Economics and Finance, vol. 31 no. 2
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 30 September 2022

Triinu Tapver

The authors examine the performance of individual global equity funds in Central and Eastern Europe (CEE) and separate the skill of their fund managers from luck.

Abstract

Purpose

The authors examine the performance of individual global equity funds in Central and Eastern Europe (CEE) and separate the skill of their fund managers from luck.

Design/methodology/approach

The authors use cross-sectional bootstrap simulations to study the monthly net and gross returns of 175 funds over the period September 2005 to December 2019. Simulations are applied to three, four, and five-factor asset pricing models, and to regressions run on fund-specific benchmark indexes. The authors also examine the value added by all funds and by fund size groups.

Findings

Using multifactor models, a majority of the individual funds fail to deliver alpha, both net and gross of fees; whereas, most of the negative alphas appear due to poor skills, not bad luck. Relative to benchmark indexes, about 5% of the sample shows skill only gross of fees, indicating that fund management fees absorb this skill. As a whole, global equity funds in CEE add more economic value than they destroy, gross of fees, which is largely driven by large funds.

Practical implications

Market-tracking passive indexes are the most reliable choice for investors who want to maximise their risk-adjusted returns at the lowest possible cost. However, investors with a high level of risk appetite might prefer small actively managed funds in CEE when market conditions are stable or growing. Investors who are less risk tolerant might prefer large actively managed funds.

Originality/value

This is the first study to shed light on the presence of skill in mutual fund returns in CEE.

Details

Managerial Finance, vol. 49 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 23 June 2022

Mohamed A. Ayadi, Anis Chaibi and Lawrence Kryzanowski

Prior research has documented inconclusive and/or mixed empirical evidence on the timing performance of hybrid funds. Their performance inferences generally do not efficiently…

Abstract

Purpose

Prior research has documented inconclusive and/or mixed empirical evidence on the timing performance of hybrid funds. Their performance inferences generally do not efficiently control for fixed-income exposure, conditioning information, and cross-correlations in fund returns. This study examines the stock and bond timing performances of hybrid funds while controlling and accounting for these important issues. It also discusses the inferential implications of using alternative bootstrap resampling approaches.

Design/methodology/approach

We examine the stock and bond timing performances of hybrid funds using (un)conditional multi-factor benchmark models with robust estimation inferences. We also rely on the block bootstrap method to account for cross-correlations in fund returns and to separate the effects of luck or sampling variation from manager skill.

Findings

We find that the timing performance of portfolios of funds is neutral and sensitive to controlling for fixed-income exposures and choice of the timing measurement model. The block-bootstrap analyses of funds in the tails of the distributions of stock timing performances suggest that sampling variation explains the underperformance of extreme left tail funds and confirms the good and bad luck in the bond timing management of tail funds. We report inference changes based on whether the Kosowski et al. or the Fama and French bootstrap approach is used.

Originality/value

This study provides extensive and robust evidence on the stock and bond timing performances of hybrid funds and their sensitivity based on (un)conditional linear multi-factor benchmark models. It examines the timing performances in the extreme tails funds using the block bootstrap method to efficiently identify (un)skilled fund managers. It also highlights the sensitivity of inferences to the choice of testing methodology.

Details

International Journal of Managerial Finance, vol. 19 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

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 1997‐2005…

980

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

Keywords

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