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Book part
Publication date: 25 February 2016

Jana 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.

Details

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

Keywords

Article
Publication date: 12 April 2023

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…

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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.

Details

Corporate Governance: The International Journal of Business in Society, vol. 23 no. 7
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 1 October 2003

George P. Artikis

The present article aims to evaluate the performance of ten domestic balanced mutual funds operating in the Greek financial market over the period 1/1/1995‐31/12/1998. In doing…

1170

Abstract

The present article aims to evaluate the performance of ten domestic balanced mutual funds operating in the Greek financial market over the period 1/1/1995‐31/12/1998. In doing so, the sample mutual funds were ranked on the basis of their return, total risk, coefficient of variation, systematic risk, and the techniques of Treynor, Sharpe and Jensen. The ten mutual funds achieved lower return than the General Index of the Athens Stock Exchange (ASE). However, the mutual funds achieved satisfactory return in relation to the total and systematic risk undertaken. The sample mutual funds followed defensive investment policy that was in line with their objectives. The General Index of the ASE appeared to be a close approximation of the market portfolio. To some extent the ranking of the mutual funds varied among the techniques of Treynor, Sharpe and Jensen, although certain mutual funds were ranked in the same order regardless of the technique used. According to Jensen, seven mutual funds had superior performance, while the remaining three demonstrated poor performance.

Details

Managerial Finance, vol. 29 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 2 May 2017

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…

1220

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.

Details

Journal of Asia Business Studies, vol. 11 no. 2
Type: Research Article
ISSN: 1558-7894

Keywords

Article
Publication date: 12 November 2018

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…

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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.

Details

Journal of Economic Studies, vol. 45 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Open Access
Article
Publication date: 2 October 2019

Hoa Thi Nguyen and Dung Thi Nguyet Nguyen

The purpose of this paper is to examine the determinants of mutual fundsperformance at both a country level and a fund level in Vietnam.

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Abstract

Purpose

The purpose of this paper is to examine the determinants of mutual fundsperformance 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 fundsperformance. Furthermore, country-level governance such as regulation effectiveness, political stability, economic growth and financial development has a positive correlation with mutual fundsperformance. 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.

Details

Journal of Economics and Development, vol. 21 no. 1
Type: Research Article
ISSN: 2632-5330

Keywords

Article
Publication date: 3 August 2015

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.

Details

Social Responsibility Journal, vol. 11 no. 3
Type: Research Article
ISSN: 1747-1117

Keywords

Article
Publication date: 12 October 2012

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…

1294

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.

Article
Publication date: 1 December 2006

Keith Hooper, Howard Davey, Roger Su and Dani A.C. Foo

Many studies have discussed mutual funds performance, especially about the persistence of excess returns. Regression is the most common method to be used to research the fund

Abstract

Many studies have discussed mutual funds performance, especially about the persistence of excess returns. Regression is the most common method to be used to research the fund persistence. Dutta (2002) proposes a simpler approach – a direct annual examination of whether a fund beats a market proxy or not, to research the persistence in American mutual fund returns. In this study, authors use a similar methodology to analyse New Zealand growth mutual funds. In addition, a statistically robust method is juxtaposed as a comparison. The study finds that the most of the funds sampled during the period 1996‐2003 are unable to better the benchmark of the world index.

Details

Accounting Research Journal, vol. 19 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 3 August 2012

Tony Chieh‐Tse Hou

The purpose of this paper is to investigate whether mutual fund investors can make effective cash flow timing decisions and examine the sensitivity of these decisions to past fund

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Abstract

Purpose

The purpose of this paper is to investigate whether mutual fund investors can make effective cash flow timing decisions and examine the sensitivity of these decisions to past fund performance using cash flow data at the individual fund level.

Design/methodology/approach

This study examines performance persistence and investor timing ability of 200 domestic equity mutual funds in Taiwan between 1996 and 2009. In particular, a performance gap measuring the difference between dollar‐weighted average monthly returns and geometric average monthly returns is used to evaluate investors' timing ability.

Findings

The empirical results show that funds that have performed well (poorly) in the previous year tend to continue performing well (poorly) in the following year, and investors' timing performance is negatively related to fund performance. The results also show that investors' timing performance is significantly and negatively related to fund size, length of fund history, and momentum‐style of funds, but positively related to value‐style funds. These results suggest that mutual fund investors are loss‐averse and demonstrate return‐chasing behavior in well‐performing funds.

Originality/value

The paper contributes to the mutual fund performance literature by proposing an integrated framework that jointly tests fund performance and how it affects investors' cash flow timing decisions. Furthermore, the paper individually measures investors' timing sensitivity for the current best (worst) performance funds and consecutive two‐year best (worst) performance funds, and contributes to a growing body of research on the behavior of mutual fund investors.

Details

Managerial Finance, vol. 38 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

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