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1 – 10 of over 35000This study evaluates risk‐adjusted performance of socially responsible mutual funds during the period 1991‐2000, using objective statistical measures grounded in modern portfolio…
Abstract
This study evaluates risk‐adjusted performance of socially responsible mutual funds during the period 1991‐2000, using objective statistical measures grounded in modern portfolio theory. A socially responsible mutual fund is defined as one which employs “social screens” in stock selection, such as whether a fi rm manufactures tobacco products, whether it is in the gambling business, whether it heeds environmental safety, its human rights records, etc. The main objective of this study is to provide empirical documentation on the risk‐adjusted returns of these mutual funds, for the benefit of investors. To our knowledge, this is one of the first, if not the first, academic study to utilize a relatively new risk‐adjusted performance measure, posited by Nobel Laureate Franco Modigliani and Leah Modigliani in 1997 (hereafter referred to as M Squared), to evaluate socially responsible mutual funds. The idea that underlies their methodology is to adjust the investment risk of a mutual fund to the level of risk in an unmanaged benchmark stock‐market index and then measure the returns on the risk‐matched fund. The M Squared measure not only relates the level of risk to the level of reward, but also enables risk‐adjusted returns to be reported on a percentage basis, rather than on an absolute basis, which makes them more easily understood by the average investor. The results of this study can be used in decision making by investors who seek objective criteria to select a socially responsible mutual fund from among a menu of several funds.
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Ashraf M. Noumir, Michael R. Langemeier and Mindy L. Mallory
The average U.S. farm size has risen dramatically over the last three decades. Motives for this trend are the subject of a large body of literature. This study incorporates farm…
Abstract
Purpose
The average U.S. farm size has risen dramatically over the last three decades. Motives for this trend are the subject of a large body of literature. This study incorporates farm size risk and return analysis into this research stream. In this paper, cross-sectional and temporal relations between farm size and returns are examined and characterized.
Design/methodology/approach
Relying on farm level panel data from Kansas Farm Management Association (KFMA) for 140 farms from 1996 to 2018, this article examines the relationship between farm size and returns and investigates whether farm size is related to risk. Two measures of farm returns are used: excess return on equity and risk-adjusted return on equity. Value of farm production and total farm acres are used as measures of farm size.
Findings
Findings suggest a significant and positive relationship between farm size and excess return on equity as well as farm size and risk-adjusted return on equity. However, this return premium associated with farm size is not associated with additional risk. Stated differently, farm size can be viewed as a farm characteristic that is associated with higher return without additional risk.
Practical implications
These findings provide further support for ongoing farm consolidation.
Originality/value
The results suggest the trend towards consolidation in production agriculture is likely to continue. Larger farms bear less risk.
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Onur Arugaslan, Ed Edwards and Ajay Samant
This paper seeks to evaluate the risk‐adjusted performance of the largest US‐based equity mutual funds using rigorous analysis grounded in modern portfolio theory and present the…
Abstract
Purpose
This paper seeks to evaluate the risk‐adjusted performance of the largest US‐based equity mutual funds using rigorous analysis grounded in modern portfolio theory and present the results in a manner which is comprehensible to a lay investor.
Design/methodology/approach
This study evaluates the performance of the 20 largest US‐based mutual funds using risk‐adjusted returns during 1995‐2004. In particular, a relatively new risk‐adjusted performance measure by Modigliani and Modigliani is used to evaluate these equity funds. This study also utilizes a variation of the Sortino Ratio to account for downside risk.
Findings
The results show that the funds with the highest returns may lose their attractiveness once the degree of risk had been factored into the analysis. Conversely, some funds may look very attractive once their low risk is factored into their performance.
Research limitations/implications
Future researchers may want to investigate the effects of factors, such as fund manager, compensation, service fees, corporate governance metrics, and overweighting in risky industries on the performance of mutual funds.
Practical implications
The empirical evidence presented in this study can be used as input in decision making by investors who are exploring the possibility of participating in the stock market via large mutual funds, but are not sure of what selection criteria to employ.
Originality/value
The paper is one of the first studies that apply the new M2 measure to evaluate the performance of mutual funds. Various other performance metrics are also utilized including the Sharpe, Sortino, Treynor measures and Jensen's α.
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Scott J. Niblock and Elisabeth Sinnewe
The purpose of this paper is to examine whether superior risk-adjusted returns can be generated using monthly covered call option strategies in large capitalized Australian equity…
Abstract
Purpose
The purpose of this paper is to examine whether superior risk-adjusted returns can be generated using monthly covered call option strategies in large capitalized Australian equity portfolios and across varying market volatility conditions.
Design/methodology/approach
The authors construct monthly in-the-money (ITM) and out-of-the-money (OTM) S&P/ASX 20 covered call portfolios from 2010 to 2015 and use standard and alternative performance measures. An assessment of variable levels of market volatility on risk-adjusted return performance is also carried out using the spread between implied and realized volatility indexes.
Findings
The results of this paper show that covered call writing produces similar nominal returns at lower risk when compared against the standalone buy-and-hold portfolio. Both standard and alternative performance measures (with the exception of the upside potential ratio) demonstrate that covered call portfolios produce superior risk-adjusted returns, particularly when written deeper OTM. The 36-month rolling regressions also reveal that deeper OTM portfolios deliver greater risk-adjusted returns in the majority of the sub-periods investigated. This paper also establishes that volatility spread variation may be a driver of performance for covered call writing in Australia.
Originality/value
The authors suggest that deeper OTM covered call strategies based on large capitalized portfolios create value for investors/fund managers in the Australian stock market and can be executed in volatile market conditions. Such strategies are particularly useful for those seeking market neutral asset allocation and less risk exposure in volatile market environments.
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Hugo Alvarez-Perez, Regina Diaz-Crespo and Luis Gutierrez-Fernandez
This study aims to examine the performance of environmental, social and governance (ESG) equity indices in Latin America (LA), evaluating their risk-return characteristics in…
Abstract
Purpose
This study aims to examine the performance of environmental, social and governance (ESG) equity indices in Latin America (LA), evaluating their risk-return characteristics in comparison to conventional benchmark indices.
Design/methodology/approach
Using a quantitative empirical approach, the authors analyze ESG equity indices from Brazil, Mexico, Chile, Peru and Colombia, employing metrics such as Sharpe, Sortino and Omega ratios to measure risk-adjusted returns. Regression analysis is employed to assess the replicability of ESG indices by benchmark indices. Monte Carlo simulations are conducted to explore the potential increase in risk-adjusted returns when ESG equity indices are incorporated into portfolios.
Findings
The study addresses critical questions for investors: Can ESG indices outperform their benchmarks? Can these ESG indices be replicated by benchmark counterparts? Do ESG equity indices enhance portfolio diversification? The findings reveal that investing in ESG indices has the potential to enhance risk-adjusted returns and portfolio diversification.
Research limitations/implications
While this study focuses on various LA economies, it’s important to note variations in currency and volatility.
Practical implications
For investors in LA, this study highlights the importance of considering ESG indices as part of their investment strategies. While not all ESG indices outperform conventional ones, some may improve diversification and risk-adjusted performance. Investors should carefully assess market-specific conditions and national factors when making investment decisions.
Originality/value
The primary contribution of this study is its focus on LA countries in the examination of diverse portfolios. The research provides valuable insights into the performance of ESG indices in this region compared to conventional benchmark indices. This approach addresses an important gap in the existing literature and offers a more comprehensive perspective on ESG investing and portfolio diversification.
Propósito
Se examina el rendimiento de los índices-ESG en América Latina (AL), evaluando sus características de riesgo y retorno en comparación con los índices convencionales.
Diseño/metodología/enfoque:
Utilizando un enfoque cuantitativo, analizamos los índices-ESG de Brasil, México, Chile, Perú y Colombia, empleando ratios de Sharpe, Sortino y Omega para medir los rendimientos ajustados al riesgo. Se utiliza análisis de regresión para evaluar la replicabilidad de los índices-ESG por parte de los índices de referencia. Se realizan simulaciones de Monte-Carlo para explorar el aumento en los rendimientos ajustados al riesgo cuando se incorporan los índices-ESG en las carteras.
Hallazgos:
El estudio aborda preguntas críticas: ¿Pueden los índices-ESG superar a sus índices de referencia? ¿Pueden estos índices-ESG ser replicados por sus contrapartes de referencia? ¿Mejoran los índices-ESG la diversificación de las carteras? Los hallazgos revelan que la inversión en índices-ESG tiene el potential de mejorar los rendimientos y la diversificación de las carteras de inversión.
Limitaciones/implicaciones de la investigación –
Aunque este estudio se centra en diversas economías de AL, es importante tener en cuenta variaciones en moneda y volatilidad.
Originalidad/valor:
La principal contribución de este estudio radica en su enfoque en países de AL en el examen de carteras diversas; ofrece valiosos conocimientos sobre el rendimiento de los índices-ESG en esta región en comparación con los índices convencionales.
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This paper aims to examine the relationship between business process management (BPM) and company performance. The research focuses on the instrumental aspect of core business…
Abstract
Purpose
This paper aims to examine the relationship between business process management (BPM) and company performance. The research focuses on the instrumental aspect of core business processes and its controlling activities in small and medium-sized companies (SMEs) to identify the relationship to company performance.
Design/methodology/approach
The results presented in this paper are based on a survey of Slovene SMEs. A questionnaire was distributed to 3007 SMEs via e-mail and a response rate of 5.42% was achieved. The financial data of companies over a six year period as derived from the publicly available financial reports of SMEs along with an industry-specific financial risk measure and other financial data were used for the company risk-adjusted performance measures of relative residual income (ROE-r) and risk-adjusted ROE (ROE-a) calculation.
Findings
The results show that instrumental aspects of core business process controlling activities are related to risk-adjusted company performance measures ROE-r and ROE-a. Companies with lower ROE-r and ROE-a have been perceived to be more focused on the instrumental aspect of BPM. Presumably due to the small sample, the results of a non-parametric Mann–Whitney U test did not statistically confirm the developed hypothesis: “the instrumental aspect of controlling as a core process management activity has a statistically significant impact on company risk-adjusted performance measures such as ROE-r and ROE-a.” Despite this, the results show a possible negative correlation between risk-adjusted performance measures and BPM, which opens possibilities for further research.
Research limitations/implications
The main limitation of the purposed study model is that the paper have studied only control activities of core business processes and relate it to company risk-adjusted performance measures. The study has been limited by the SME sample and the use of a survey as a research instrument. An additional limitation of the research is the degree of reliability implied by the assumptions of the models used to estimate the required return on equity and risk. Results concern investors, managers and practitioners to start BPM improvement initiatives, to set BPM priority measures and to set priority management decisions and further actions.
Originality/value
This paper presents the unique findings from an investigation of the instrumental aspects of BPM practices and their relationship to company risk-adjusted performance measures in SMEs. This paper developed a measurement instrument for measuring the instrumental aspects of BPM use. An additional original contribution is the use of company risk-adjusted performance measures such as ROE-r and ROE-a, which take into account the required profitability of companies in different industries according to the risk and allows comparable results of companies from different industries. The approach is innovative and interesting as regards researching the factors that affect the profitability of companies that operate in different industries.
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Kristine L. Beck, James Chong and Bruce D. Niendorf
This study aims to examine whether a good corporate reputation leads to superior investment returns. Theory and empirics provide support for the idea that a good corporate…
Abstract
Purpose
This study aims to examine whether a good corporate reputation leads to superior investment returns. Theory and empirics provide support for the idea that a good corporate reputation improves firm value, but much of the previous research fails to consider the risk of the companies they study and relies only on accounting measures of performance such as return on assets. A complete picture of the relationship between corporate reputation and shareholder value should include risk-adjusted returns and correlation with benchmark returns.
Design/methodology/approach
The Harris Poll Reputation Quotient (RQ), based on the reputations of the 100 most visible companies, suggests that companies with a “solid reputation” are more likely to be attractive investments. The authors construct portfolios using deciles and the RQ categories, rebalancing annually as RQ rankings are updated. Returns are adjusted for risk using Jensen's alpha, the information ratio, the Sharpe ratio, Modigliani and Modigliani's M2 measure, and Muralidhar's M3 measure.
Findings
The results indicate that choosing a portfolio based on the highest RQ-ranked firms does outperform the market on a risk-adjusted basis, and that the relationship between rankings and time-weighted returns is roughly monotonic. The authors also observe that corporate reputation is persistent, and that the best and worst most-visible firms are more likely to be privately held.
Originality/value
This research adds to the literature by including both market-based return measures and risk in the examination of the relationship between corporate reputation and financial performance.
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Onur Arugaslan, Ed Edwards and Ajay Samant
This paper aims to evaluate the risk‐adjusted performance of US‐based international equity funds using objective statistical measures grounded in modern portfolio theory, and to…
Abstract
Purpose
This paper aims to evaluate the risk‐adjusted performance of US‐based international equity funds using objective statistical measures grounded in modern portfolio theory, and to present the results in a manner which is easily understood by the average investor.
Design/methodology/approach
This study evaluates the performance of 50 large US‐based international equity funds using risk‐adjusted returns during 1994‐2003. In particular, a relatively new risk‐adjusted performance measure (M squared), first proposed by Franco Modigliani and Leah Modigliani in 1997, is used to evaluate these equity funds.
Findings
The empirical results show that the funds with the highest average returns may lose their attractiveness to investors once the degree of risk embedded in the fund has been factored into the analysis. Conversely, some funds, whose average (unadjusted) returns do not stand out, may look very attractive once their low risk is factored into their performance.
Research limitations/implications
It may be worthwhile to examine the effects of factors such as fund manager compensation, service fees, corporate governance metrics, and overweighting in risky countries/regions on the performance of international equity funds.
Practical implications
The evidence presented in this study can be used as input in decision making by investors who are exploring the possibility of participating in the global stock market via international equity funds.
Originality/value
This paper is one of the first studies that apply the new M squared measure to evaluate the performance of international equity funds using both domestic and international benchmark indices. Various other performance metrics are also utilized including Sharpe and Treynor measures, and Jensen's Alpha.
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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.
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William Kline, Masaaki Kotabe, Robert D. Hamilton and Steven Balsam
The purpose of this paper is to examine how executive pay schemes influence managerial efficiency, which the authors measure as the risk-adjusted firm performance.
Abstract
Purpose
The purpose of this paper is to examine how executive pay schemes influence managerial efficiency, which the authors measure as the risk-adjusted firm performance.
Design/methodology/approach
The authors utilized hierarchical regression to test the hypotheses.
Findings
The authors find that as options constitute a higher percentage of total compensation packages, subsequent firm risk-adjusted performance declines. The authors also find an inverse relationship between TMT stock ownership and risk-adjusted performance.
Research limitations/implications
The findings suggest that the firm stakeholders should reconsider the likely influence of option-based incentives and equity holdings on the risk-adjusted performance.
Originality/value
Most executive compensation research focuses on either the pay-to-performance or pay-to-risk links. However, in this paper, the authors combine both the performance and risk dimensions simultaneously.
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