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Article
Publication date: 27 December 2021

Faisal Khan, Syed Hamid Ali Shah and Romana Bangash

This study is about the determinants of cash holding and impact of cash holding on mutual funds’ performance. In addition, the study analyzes the impact of performance-related…

Abstract

Purpose

This study is about the determinants of cash holding and impact of cash holding on mutual funds’ performance. In addition, the study analyzes the impact of performance-related determinants of cash holding on funds' performance.

Design/methodology/approach

Panel data of ten years of 190 open-end mutual funds are analyzed through fixed effect regression technique. The risk-adjusted funds' performance of cash based portfolios is computed through capital asset pricing model (CAPM) (1964), Fama and French (1993) and Carhart (1997) models.

Findings

The results indicate that small size funds, high charging front-end load funds, high turnover ratio funds, high 12-month fund returns run up, high dividend paying funds and high redemption level funds hold more cash for precautionary purpose to avoid costs of cash short-falls. Further, monthly average raw returns and risk-adjusted performance of funds with the lowest raw and residual cash holding are found higher than the funds with the highest cash holding. An increase in cash is found to dilute performance.

Originality/value

This is a pioneer study in a corporate environment with shallow capital market, reliance of businesses on bank credit, firms exposed to agency issues, wealth expropriations and existence of business groups with political linkages but with opportunities of investments due to expected favorable geo-socio-political situation. The study generates outcomes relevant for other similar economies.

Details

International Journal of Emerging Markets, vol. 18 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 23 December 2022

Gaurav S. Chauhan

The purpose of this study is to measure mutual funds' manager performance by attributing it to their abilities to choose better securities (selectivity effect) and to allocate…

Abstract

Purpose

The purpose of this study is to measure mutual funds' manager performance by attributing it to their abilities to choose better securities (selectivity effect) and to allocate these securities better than their benchmarks (allocation effect). The study enables the authors to examine the relative contributions of the commonly known asset-pricing factors in mutual funds' performance.

Design/methodology/approach

To examine managers' ability to steer funds' returns, the authors conduct a two-dimensional holdings-based analysis using factor-specific decomposition of funds' excess returns into their ability to select and allocate securities better than their benchmarks. Subsequently, the authors conduct an analysis of the covariance (ANCOVA) due to these factors in explaining funds' excess returns over time.

Findings

While managers' ability to choose better securities than the benchmarks (the selectivity effect) appears modest, some funds (especially the winners) allocate securities in their portfolios better than their benchmarks (the allocation effect) based on their exposures to certain factors (e.g. the momentum factor for the winner funds). However, although funds consistently gain through their ability to predict the size and value factors well, they do not consistently possess the skills to predict the momentum factor.

Research limitations/implications

Although the paper analyzes all the available diversified funds, the sample excludes several other categories, such as thematic and international funds. Further, the analysis is based on equity-oriented Indian funds. Broader studies of changes in factor exposures and the inclusion of more factors apart from those conventionally used may shed more light on the managers' ability to maneuver these factors.

Practical implications

The results show that mutual fund managers lack persistence in their performance, even though some of them could predict specific factors well. Since the activity in active mutual funds could not lead to superior performance over time, investors could be better off by selecting cheaper passive funds for their long-term investments.

Originality/value

The paper presents a novel approach to studying funds' performance by conducting a two-dimensional holdings-based analysis to capture the relative contributions of common asset-pricing factors in the cross-section as well as over time.

Details

Managerial Finance, vol. 49 no. 7
Type: Research Article
ISSN: 0307-4358

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

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: 15 June 2023

Muhammad Arsalan Aqeeq and Sumaira Chamadia

This paper evaluates the performance of actively managed conventional and Islamic equity funds in a developing economy with a focus to assess the performance-growth puzzle posited…

Abstract

Purpose

This paper evaluates the performance of actively managed conventional and Islamic equity funds in a developing economy with a focus to assess the performance-growth puzzle posited by Gruber (1993) (a.k.a Gruber’s puzzle). Under the context of an emerging market of Pakistan, this study explores if actively managed equity fund (AMEF) managers have been able to add value by outperforming the market in terms of stock-selection and market-timing abilities; and the comparative performance analysis of Islamic versus conventional AMEFs is also carried out.

Design/methodology/approach

We employ Sharpe and Treynor ratios, Capital asset pricing model, Fama–French three factors model (1993), Carhart four-factor model (1997) and Hendrickson (1981) market timing models on 45 equity funds comprising of 23 conventional and 22 Islamic equity funds operating in Pakistan for a period of 10 years. The overall sample period (2008–2018) is divided into two 5 years sub-periods (i.e. 2009–2013 and 2014–2018) and three 3 years sub-periods (2009–2011, 2012–2014 and 2015–2017) to be viewed in conjunction with the country's macro-economic condition.

Findings

We report that the actively managed equity funds (AMEFs) were unable to beat the market index with their stock selection or market timing capabilities. However, AMEFs depicted improved performance in the post-global financial crisis period where both conventional and Islamic AMEFs generated substantial rewards for the given amount of risk. Also, conventional AMEFs outperformed Islamic AMEFs potentially due to their holdings in highly leveraged value and large-cap stocks, while Islamic AMEFS invest more cautiously in small-cap and value firms. Analysis of market timing skills revealed that the funds have not been able to select the undervalued stocks and adopted a defensive strategy in the post-global financial crisis recovery period.

Practical implications

Our findings shed some interesting insights and raise some pertinent questions for research, policy, and practice – specifically for developing countries’ context. The no ‘return-growth’ configuration defies its fit with the ‘Gruber puzzle’ and somewhat presents a case of what we call the ‘Inverse Grubber puzzle’. This novel notion of the ‘Inverse Grubber puzzle’ should inform policy and practice to reflect on their practices, institutional arrangement, regulatory framework and policy design in developing economies characterized by lacklustre performance and growth of AMEFs. For example, the regulatory design may consider focusing on stimulating financial inclusion and deepening by motivating low-cost Index tracker funds (ITFs) – with lower fund management costs, while allocating the avoided cost to flow towards effective marketing campaigns driving greater awareness, financial deepening, and investor base diversification. For future research, financial development researchers may explore the implications and appropriateness of AMEFs versus ITFs in other developing economies.

Originality/value

The work reported in this paper is original and constitutes a valuable asset for ethno-religious-sensitive investors. The research has not been published in any capacity and is not under consideration for publication elsewhere.

Details

Journal of Islamic Accounting and Business Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 6 June 2022

Yanlin Sun, Siyu Liu and Shoudong Chen

This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better protect the…

Abstract

Purpose

This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better protect the interests of minority investors.

Design/methodology/approach

This paper takes all the non-financial companies on the Chinese Growth Enterprise Market from 2011 to 2020 as study object and selects securities investment funds of their top ten circulation stocks to study the relationship between fund style drift and stock price crash risk.

Findings

Fund style drift is likely to add stock price crash risk. Financial risk is positively correlated with stock price crash risk. Fund style drift affects stock price crash risk via the mediating effect of financial risk, and fund style drift and financial risk have a marked impact on the stock price crash risk of non-state enterprises, yet a non-significant impact on that of state-owned enterprises.

Originality/value

This paper links fund style drift with stock price crash risk in an exploratory manner and enriches the study perspectives of relationship between institutional investors’ behaviors and stock price crash risk, thus enjoying certain academic value. On the one hand, it furnishes a new approach to the academic frontier issue concerning financial risk and stock price crash risk, and proves that financial risk is positively correlated with stock price crash risk. On the other hand, it regards financial risk as a mediating variable of fund style drift for stock price crash risk and further explores different influencing mechanism of institutional investors’ behaviors.

Details

China Finance Review International, vol. 13 no. 2
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 21 January 2022

Naseem Al Rahahleh and M. Ishaq Bhatti

This paper investigates the performance of locally focused equity mutual funds (LFEFs) in Saudi Arabia as compared with the performance of benchmark funds. More specifically, the…

Abstract

Purpose

This paper investigates the performance of locally focused equity mutual funds (LFEFs) in Saudi Arabia as compared with the performance of benchmark funds. More specifically, the focal question pertains to whether Shariah-compliant mutual funds (SMFs) and conventional mutual funds (CMFs) outperform their respective benchmarks. Undertaken in the context of Saudi Arabia's economic planning under Vision 2030, the study offers a foundation for determining whether and the extent to which Shariah-compliant investment strategies are competitive—a matter of considerable importance across 57 Muslim countries.

Design/methodology/approach

The Carhart four-factor model is applied to a sample of 39 Saudi Arabian mutual funds (MFs) using the monthly net asset value (NAV) per share. The sample period, April 2007 to October 2016, is considered in its entirety and as three sub-periods, i.e. low-, medium- and high-volatility.

Findings

The results show that the locally focused equity mutual funds (LFEFs) significantly outperformed their benchmark, i.e. the Tadawul All Share Index (TASI), during the full sample period and the low-volatility period. According to the empirical comparison, the CMFs also outperformed their TASI benchmark for the full sample period and the low-volatility period. However, the SMFs neither outperformed nor underperformed their S&P Saudi Arabia Domestic Shariah Index benchmark. That is, for each of the SMFs included in the sample, the Jensen's alpha was insignificant for both the full sample and all three volatility sub-periods.

Research limitations/implications

In this paper, the four-factor model is used in the context of a single country. The results, therefore, may not be generalizable to the multi-country level in the Gulf Council Cooperation (GCC) region given differences between the member countries in terms of financial structure and economic focus.

Practical implications

The results reported constitute a useful guide for policymakers and faith-based-sensitive investors concerned about the Shariah compliancy of their portfolios given that there is very little difference between how CMFs and SMFs performed in the focal period. This research can be extended to include other Islamic countries in the GCC region as a basis for identifying optimal investment vehicles, i.e. those most likely to produce high returns at low risk.

Originality/value

The work reported in this paper is original and constitutes a valuable asset for ethnoreligious-sensitive investors. The research has not been published in any capacity and is not under consideration for publication elsewhere.

Details

International Journal of Emerging Markets, vol. 18 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 22 March 2022

Bader Jawid Alsubaiei

This study aims to examine the role of fund family size on the money flow of Saudi Arabian open-end equity mutual funds. The author also investigates whether the relationship…

Abstract

Purpose

This study aims to examine the role of fund family size on the money flow of Saudi Arabian open-end equity mutual funds. The author also investigates whether the relationship between fund flow and past return varies based on the fund's family size.

Design/methodology/approach

The study analyses 256 equity funds that operated in Saudi Arabia from 2006 until 2017. Pooled and fixed-effect regression models are used to test the relationship between mutual fund flow and family size.

Findings

The results indicate that fund flow is higher for large size family funds. The results also show that the relationship between mutual fund flow and past performance is more pronounced for large size families, which supports the concept that investors pay extra attention to funds' return and size.

Research limitations/implications

The author provides evidence of the significant effect of family size of mutual funds on future money flow, which helps fund managers to understand investors' motivations for allocating their cash.

Originality/value

This paper contributes to the literature by examining the impact of family size level on the interaction between fund flow and past performance. This study is believed to be the first to investigate the family size factor in Saudi Arabia using a comprehensive data set.

Details

International Journal of Emerging Markets, vol. 18 no. 12
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 13 December 2023

Fernando Ruiz-Lamas and David Peón

This article analyses the recent inverse transition from goodwill impairment to goodwill amortisation implemented in Spain in 2016. The authors contribute to the existing…

Abstract

Purpose

This article analyses the recent inverse transition from goodwill impairment to goodwill amortisation implemented in Spain in 2016. The authors contribute to the existing literature by describing their differing impact over goodwill and impairment figures and testing the impact of goodwill on balances over stock prices.

Design/methodology/approach

First, using a database with all Spanish non-financial firms with positive goodwill on their balance sheets, the authors describe the impact of the regulatory change over goodwill and impairment figures. Second, focussing on listed firms only, the authors study the impact of financial reporting of goodwill and impairment on stock prices.

Findings

Average goodwill per company and the share of goodwill over total assets significantly reduced after 2016, but the results cannot be easily extrapolated to listed firms due to lack of data. When testing the impact of potentially inflated goodwill balances on prices, the authors find that investors kept overvaluing firms with inflated goodwill balances also with the amortisation method.

Research limitations/implications

The lack of data for listed firms with goodwill in Spain makes it difficult to obtain statistically sound evidence, the results could be biased by the cultural traits of the country and related to the intensity of enforcement and monitoring.

Practical implications

This might suggest that the effects of the impairment method linger, so the authors conform to the interpretation that the systematic amortisation paired with a periodic impairment test may lead to accounting that better reflects the underlying economics of goodwill.

Originality/value

To the best of the authors' knowledge, there are no recent articles that analyse this new “turn-around” requiring again the systematic amortisation of goodwill.

Details

Journal of Applied Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 14 September 2023

Shubhangi Verma, Purnima Rao and Satish Kumar

This study aims to establish the factors affecting the financial investment decision-making of an investor, with specific reference to investors’ emotions and how various events…

Abstract

Purpose

This study aims to establish the factors affecting the financial investment decision-making of an investor, with specific reference to investors’ emotions and how various events such as festivals, the pandemic and sports matches affect their investors’ investment decision-making. The authors further intend to understand the role of these investor emotions in creating stock market anomalies.

Design/methodology/approach

Twenty-nine semistructured exploratory interviews with fund managers from the top 10 asset management companies in India, who deal with individual investors regularly, were taken. The interviews were conducted to identify and describe the underlying ideas and sentiments that influence an individual’s investment behavior.

Findings

Although risk and return are the primary motivators of investment decisions, fund managers’ daily interactions with individual investors are affected by unpredictability and technical ambiguity, and investing is an inherently emotionally arousing process, according to the findings of the in-depth interviews.

Originality/value

To the best of the authors’ knowledge, this study is one of the first studies in Indian market to report the views of financial professionals about the emotional aspect of investors in making an investment decision. With most of the research conducted using quantitative methods, the current study brings in the perspective of financial professionals using primary data.

Details

Qualitative Research in Financial Markets, vol. 16 no. 2
Type: Research Article
ISSN: 1755-4179

Keywords

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