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Article
Publication date: 22 April 2003

Ed Edwards and Ajay Samant

This study evaluates risk‐adjusted performance of socially responsible mutual funds during the period 1991‐2000, using objective statistical measures grounded in modern…

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.

Details

American Journal of Business, vol. 18 no. 1
Type: Research Article
ISSN: 1935-5181

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Article
Publication date: 31 December 2007

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…

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987

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.

Details

International Journal of Commerce and Management, vol. 17 no. 1/2
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 24 August 2020

Martin Edward Haran, Daniel Lo, Michael McCord, Peadar Davis and Lay Cheng Lim

The purpose of this paper is to test the extent to which company-specific attributes including market capitalisation, capital structure and investment focus impact upon…

Abstract

Purpose

The purpose of this paper is to test the extent to which company-specific attributes including market capitalisation, capital structure and investment focus impact upon the performance of European listed real estate companies. Enhanced understanding of firm-level performance drivers is important for investors in order to diversify their investment portfolios and to mitigate company-specific risks at different points in the real estate cycle.

Design/methodology/approach

The study centres on six key listed European real estate markets selected on the basis of market capitalisation, diversity, transparency and maturity. A series of statistical tests are undertaken using EPRA and Bloomberg data for the period of 2007–2017 using 113 listed property companies, all of whom were contemporaneous constituents of EPRA indices in this period. A series of customised performance indices were constructed to evaluate firm-level performance attributes.

Findings

Firm-level attributes collectively account for more variation of risk-adjusted return than sector-level attributes over the investigation period. The impact of firm-specific attributes on performance varies significantly from country to country attributable to the contrasting cyclical property market trends in the pre– and post–Global Financial Crisis period. REITs outperformed non-REITs on a risk-adjusted basis attributed to the strong performance of “niche” market entrants allied with stronger regulatory structure. Finally, the findings showcase that sector specialist firms outperform diversified companies inferring that investors should seek to attain diversification through portfolio-based approaches rather than firm-level strategies.

Practical implications

The results have implications for real estate companies aiming to raise capital internally for growth as higher return on equity in general signals reduced cost of capital. Secondly, the findings should be of practical use to multinationals specialising in international real estate trading in designing their business plans in general and formulating cross-country investment strategies in particular. Last but not least, a more refined conceptualisation of corporate-level performance drivers should complement existing professional practices in relation to business/company appraisal.

Originality/value

The research integrates EPRA and Bloomberg data sets to create a series of bespoke index constructs to measure the impact of firm-specific attributes on European listed real estate companies. Additionally, the authors construct a Herfindahl Index (H.I.) to further the debate on the impacts of diversification within the listed real estate sector. This serves to further heighten investor understanding of investment allocation and portfolio optimisation strategies for the listed real estate sector given the increasingly diverse range of investment opportunities within emerging sub-markets.

Details

Journal of Property Investment & Finance, vol. 39 no. 4
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 8 May 2018

Graeme Newell and Muhammad Jufri Bin Marzuki

The Alternative Investment Market (AIM) is an important UK growth-focused stock market. The purpose of this paper is to assess the significance, risk-adjusted performance…

Abstract

Purpose

The Alternative Investment Market (AIM) is an important UK growth-focused stock market. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of property companies on the AIM stock market over 2005-2015. The post-Global Financial Crisis (GFC) recovery of property companies on AIM is highlighted, as well as their performance compared with property companies on the London Stock Exchange (LSE) main board.

Design/methodology/approach

Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of property companies on the AIM stock market over 2005-2015 are assessed and compared with a range of other asset classes. Sub-period analysis is used to assess the post-GFC recovery of the property companies on AIM.

Findings

Property companies on AIM delivered poor risk-adjusted returns over 2005-2015, with limited portfolio diversification benefits with the overall AIM stock market. However, since the GFC, property companies on AIM have delivered strong risk-adjusted returns, with improved portfolio diversification benefits with the overall AIM stock market. This post-GFC performance is shown to be more than a small cap effect, reflecting the property portfolios in these AIM property companies. Despite this strong post-GFC performance, the AIM property companies under-performed property companies on the LSE main board on a risk-adjusted basis.

Practical implications

AIM provides an important platform for property companies seeking start-up and growth opportunities in a less-regulated funding environment. This has been reinforced by strong risk-adjusted performance in a post-GFC context. However, the stronger risk-adjusted performance of LSE listed property companies and their superior scale, resources and higher quality property portfolios present challenges for increased investor support for the AIM property companies going forward.

Originality/value

This paper is the first published empirical research analysis of the risk-adjusted performance and diversification benefits of property companies on the AIM stock market. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of property companies on the AIM stock market in a portfolio.

Details

Journal of European Real Estate Research, vol. 11 no. 1
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 28 October 2008

Hossein Varamini and Svetlana Kalash

The main purpose of this study is to use the Sharpe Ratio to test the efficient market hypothesis for different market capitalization and investment styles of mutual…

Abstract

The main purpose of this study is to use the Sharpe Ratio to test the efficient market hypothesis for different market capitalization and investment styles of mutual funds. The results of the study for the entire period of 1994‐2007 as well as the two subperiods (1994‐1999 and 2000‐2007) indicate that small cap funds have provided the highest risk‐adjusted return for the entire period whereas growth funds have exhibited lower returns. The findings, therefore, suggest that the mutual funds market is not always efficient, which makes it possible for an investor or a mutual fund manager to earn excess return on a risk‐adjusted basis.

Details

American Journal of Business, vol. 23 no. 2
Type: Research Article
ISSN: 1935-5181

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Article
Publication date: 4 September 2017

Muhammad Jufri Marzuki and Graeme Newell

US commercial property is an important investment opportunity for institutional investors. The purpose of this paper is to assess the significance, risk-adjusted

Abstract

Purpose

US commercial property is an important investment opportunity for institutional investors. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of US commercial property (both direct property and REITs) in a mixed-asset portfolio over 1994-2016. The 2009-2016 post-GFC recovery of US commercial property is specifically highlighted.

Design/methodology/approach

Using quarterly total returns, the risk-adjusted performance and portfolio diversification benefits of US commercial property over 1994-2016 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of US commercial property in a mixed-asset portfolio. Sub-period analysis over 2009-2016 is used to assess the post-GFC recovery of US commercial property.

Findings

US commercial property delivered mixed results over 1994-2016; direct property gave the best risk-adjusted performance, while US-REITs performance was hampered by high volatility. Since the GFC, both forms of US commercial property have delivered stronger risk-adjusted returns with improved diversification benefits, especially in the context of an inter-property investment strategy. However, US-REITs did not improve their diversification benefits with the stock market over this period. This sees US commercial property as an important component in the US mixed-asset portfolio in the post-GFC environment, with a much stronger role exhibited by US direct property in the post-GFC mixed-asset portfolio.

Practical implications

US commercial property emerged from the GFC as a stronger and more robust property investment opportunity, with both the direct property and US-REITs fully recovered to their pre-GFC performance level in 2012. The results highlight the major role of US commercial property in a US mixed-asset portfolio in the post-GFC context. The superior risk-adjusted performance of US commercial property sees both direct and listed US commercial property contributing significantly to the mixed-asset portfolio throughout the entire risk-return spectrum, particularly direct property. Given the increased capital flows into the US property market since the GFC, this is particularly important as many investors, both local and international, use direct and listed property investment opportunities as conduits for their significant US commercial property exposure.

Originality/value

This paper is the first published empirical research analysis that specifically assessed the post-GFC performance and role of US commercial property in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision making by institutional investors regarding the strategic role of US commercial property in a mixed-asset portfolio in a post-GFC context.

Details

Journal of Property Investment & Finance, vol. 35 no. 6
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 3 June 2019

Rasha Tawfiq Abadi and Florinda Silva

This study aims to investigate the performance of fundamental weighted portfolios (using sales, cash flows, dividends, book values and a composite of all these variables)…

Abstract

Purpose

This study aims to investigate the performance of fundamental weighted portfolios (using sales, cash flows, dividends, book values and a composite of all these variables), an equal weighted portfolio and a smoothed cap-weighted (CW) portfolio in Middle East and North Africa (MENA) markets. The performance of these portfolios is compared with that of a CW portfolio for the period 2005 to 2015.

Design/methodology/approach

The portfolios are formed using different concentration levels, different construction schemes and different sub-regions. The performance is assessed using a large set of risk-adjusted performance measures, including more robust measures in the context of multi-factor models, such as the Fama and French (1993) three-factor model, the Fama and French (2015) five-factor model and a seven-factor model.

Findings

The results show that the fundamental portfolios, with the exception of the sales portfolio, underperform the CW portfolio using either the traditional or more robust risk-adjusted performance measures. The underperformance of the fundamental portfolios is found to be robust using different concentration levels, different construction schemes and different sub-regions. The results also show that the equal weighted portfolio outperforms the CW portfolio using traditional risk-adjusted measures. However, after controlling for additional risk factors, this outperformance disappears.

Practical implications

The failure of fundamental indexation in the emerging markets could help the researchers and the academics to search for the best weighting method that could be used as an alternative to the CW indexation method.

Originality/value

The results of the study add evidence to the debatable propositions on the performance of fundamental portfolios in emerging markets. Furthermore, the findings may help domestic and international investors, practitioners and decision-makers to deepen their knowledge in terms of the best portfolio construction scheme in the MENA region.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 3 August 2015

Saumya Ranjan Dash and Jitendra Mahakud

This paper aims to investigate whether the use of conditional and unconditional Fama and French (1993) three-factor and Carhart (1997) four-factor asset pricing models…

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1450

Abstract

Purpose

This paper aims to investigate whether the use of conditional and unconditional Fama and French (1993) three-factor and Carhart (1997) four-factor asset pricing models (APMs) captures the role of asset pricing anomalies in the context of emerging stock market like India.

Design/methodology/approach

The first step time series regression approach has been used to drive the risk-adjusted returns of individual securities. For examining the predictability of firm characteristics or asset pricing anomalies on the risk-adjusted returns of individual securities, the panel data estimation technique has been used.

Findings

Fama and French (1993) three-factor and Carhart (1997) four-factor model in their unconditional specifications capture the impact of book-to-market price and liquidity effects completely. When alternative APMs in their conditional specifications are tested, the importance of medium- and long-term momentum effects has been captured to a greater extent. The size, market leverage and short-term momentum effects still persist even in the case of alternative unconditional and conditional APMs.

Research limitations/implications

The empirical analysis does not extend for different market scenarios like high and low volatile market or good and bad macroeconomic environment. Because of the constraint of data availability, the authors could not include certain important anomalies like net operating assets, change in gross profit margin, external equity and debt financing and idiosyncratic risk.

Practical implications

Although the active investment approach in stock market shares a common ground of semi-strong form of market efficiency hypothesis which also supports the presence of asset pricing anomalies, less empirical evidence has been explored in this regard to support or repute such belief of practitioners. Our empirical findings make an attempt in this regard to suggest certain anomaly-based trading strategy that can be followed for active portfolio management.

Originality/value

From an emerging market perspective, this paper provides out-of-sample empirical evidence toward the use of conditional Fama and French three-factor and Carhart four-factor APMs for the complete explanation of market anomalies. This approach retains its importance with respect to the comprehensiveness of analysis considering alternative APMs for capturing unique effects of market anomalies.

Details

Journal of Asia Business Studies, vol. 9 no. 3
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 4 November 2013

Saumya Ranjan Dash and Jitendra Mahakud

The purpose of this paper is to investigate the firm-specific anomaly effect and to identify market anomalies that account for the cross-sectional regularity in the Indian…

Abstract

Purpose

The purpose of this paper is to investigate the firm-specific anomaly effect and to identify market anomalies that account for the cross-sectional regularity in the Indian stock market. The paper also examines the cross-sectional return predictability of market anomalies after making the firm-specific raw return risk adjusted with respect to the systematic risk factors in the unconditional and conditional multifactor specifications.

Design/methodology/approach

The paper employs first step time series regression approach to drive the risk-adjusted return of individual firms. For examining the predictability of firm characteristics on the risk-adjusted return, the panel data estimation technique has been used.

Findings

There is a weak anomaly effect in the Indian stock market. The choice of a five-factor model (FFM) in its unconditional and conditional specifications is able to capture the book-to-market equity, liquidity and medium-term momentum effect. The size, market leverage and short-run momentum effect are found to be persistent in the Indian stock market even with the alternative conditional specifications of the FFM. The results also suggest that it is naï argue for disappearing size effect in the cross-sectional regularity.

Research limitations/implications

Constrained upon the data availability, certain market anomalies and conditioning variables cannot be included in the analysis.

Practical implications

Considering the practitioners' prospective, the results indicate that the profitable investment strategy with respect to the small size effect is still persistent and warrants close-ended mutual fund investment portfolio strategy for enhancing the long-term profitability. The short-run momentum effect can generate potential profits given a short-term investment horizon.

Originality/value

This paper provides the first-ever empirical evidence from an emerging stock market towards the use of alternative conditional multifactor models for the complete explanation of market anomalies. In an attempt to analyze the anomaly effect in the Indian stock market, this paper provides further evidence towards the long-short hedge portfolio return variations in terms of a wide set of market anomalies that have been documented in prior literature.

Details

Journal of Indian Business Research, vol. 5 no. 4
Type: Research Article
ISSN: 1755-4195

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Article
Publication date: 1 January 2008

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…

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2999

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.

Details

Managerial Finance, vol. 34 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

1 – 10 of over 2000