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The purpose of this paper is to examine managerial skill of US equity mutual funds in the context of both abnormal return and risk.

The authors evaluate manager skill based on the outperforming probability and cumulative distribution function of the actual funds and the bootstrapped funds. And the authors recognize the role of fund life cycle and use different evaluation horizons to control for fund age and the overall state of the market.

The authors find that a small percentage of equity funds can beat the market, and the percentage is overall higher than what the control group would predict. The authors find no evidence of persistence. The authors also document that the chance of underperformance is much higher than what the authors had expect from the control group. Taking the risk-return tradeoff into account, any performance advantage of actual funds over bootstrapped funds is correlated with tail risk, and a robustness check confirms this finding.

The authors find that the outperforming probability itself is not enough to confirm the existence of manager skill. The complete story of mutual fund alpha, should it exist, would not be complete without incorporating both risk and luck.

Purpose – This research pinpoints the limitations of conventional models for evaluating the performance of hedge funds and attempts to provide a new framework for modeling the dynamics of risk structures of hedge funds.

Methodology/approach – This chapter aims to explore how the systematic risk exposures of hedge funds vary over time and depend on exogenous variables that managers are supposed to use in their dynamic investment strategies. To achieve this, we used a Bayesian time-varying CAPM-based beta model within a state space technology.

Findings – The results showed that the volatility, term spread rate, and shocks in liquidity influence significantly on the time variation of hedge funds. Besides, the dynamics of beta indicates that the transmission channels of systematic risk are mainly the leverage levels of hedge funds and liquidity shocks.

Originality/value of chapter – These results are original because they help to explain how expected and unexpected hedge fund returns are correlated with the systematic risk factors via the beta dynamics.

This research aims to examine hedge funds’ performance, risk and flow before and after the implementation of the Stop Trading on Congressional Knowledge (STOCK) Act.

This paper includes the use of different factor models to highlight the performance and risk of hedge funds before and after the implementation of the STOCK Act. Hedge fund holdings are retrieved from Thomson Reuters Lipper Hedge Fund Database (TASS).

This study finds significant differences before and after the implementation of the STOCK Act. The results for the entire sample period indicate that hedge funds suffered lower-alpha, standard deviation and idiosyncratic risk after the implementation of the STOCK Act.

The paper’s originality and value lie in addressing the relationship gap between the STOCK Act and hedge fund performance.

This study aims to comparatively analyze the systematic, idiosyncratic and downside risk exposure of both Islamic and conventional funds in Pakistan to see which of the funds has higher risk exposure.

The study analyzes different types of risks involved in both Islamic and conventional funds for the period from 2009 to 2016 by using different risk measures. For systematic and idiosyncratic risk single factor CAPM and multifactor models such as Fama French three factors model and Carhart four factors model are used. For downside risk analysis different measures such as downside beta, relative beta, value at risk and expected short fall are used.

The study finds that Islamic funds have lower risk exposure (including total, systematic, idiosyncratic and downside risk) compared with their conventional counterparts in most of the sample years, and hence, making them appear more attractive for investment especially for Sharīʿah-compliant investors preferring low risk preferences.

As this study shows, Islamic mutual funds exhibit lower risk exposure than their conventional counterparts so investors with lower risk preferences can invest in these kinds of funds. In this way, this research provides the input to the individual investors (especially Sharīʿah-compliant investors who want to avoid interest based investment) to help them with their investment decisions as they can make a more diversified portfolio by considering Islamic funds as a mean for reducing the risk exposure.

To the best of the author’s knowledge, this study is the first attempt at world level in looking at the comparative risk analysis of various types of the risks as follows: systematic, idiosyncratic and downside risk, for both Islamic and conventional funds, and thus, provides significant contribution in the literature of mutual funds.

The present article aims to evaluate the performance of sixteen equity mutual funds operating in the Greek financial market over the period 1/1/1995‐31/12/1999. 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, and Sharpe. Four mutual funds achieved lower return than the General Index of the Athens Stock Exchange (ASE). All sixteen mutual funds showed lower total risk, and risk‐return coefficient than the General Index of the ASE. In all mutual funds the beta coefficient was statistically significant at 5 per cent level of significance. The alpha coefficient was also statistically significant at 5 per cent level of significance in eight mutual funds. The movements of the General Index of the ASE explain more than 80 per cent of the variation in return in all sixteen mutual funds. Eight mutual funds were ranked in the same order on either Treynor’s or Sharpe’s technique.

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.

The purpose of this paper is to explore the motivation behind mutual funds’ risk shifting behavior by examining its impact on fund performance, while jointly considering fund managers’ compensation incentives and career concerns.

The study uses a sample of US actively managed equity funds over the period 1980-2010. A fund’s risk shifting is estimated as the difference between the fund’s intended portfolio risk in the second half of the year and the realized portfolio risk in the first half of the year. Using the state of the market to identify the dominating type of incentive that fund managers face, we examine the relationship between performance and risk shifting in a cross-sectional regression setting, using the Fama and MacBeth (1973) methodology.

The authors find that poorly performing (well performing) funds are likely to increase (decrease) their risk level in bull markets, while reducing (increasing) it during bear markets. Furthermore, we find that funds that increase risk underperform, while those that decrease their portfolio risk do not. In addition, we find that poorly performing funds that increase (or decrease) their risk underperform across bull and bear markets, while well performing funds that reduce risk during bull markets subsequently outperform.

The paper contributes to the literature on mutual fund risk shifting by providing evidence that the performance consequence of such behavior is dependent on the state of the market and on the funds’ past performance. The results suggest that loser funds tend to be agency prone or be managed by managers with inferior investment skill, and that winner funds exhibit superior investment ability during bull markets. The authors argue that both the agency and investment ability hypotheses are driving fund managers’ risk shifting behavior.

The purpose of this paper is to empirically analyze the “market-neutral” characteristics of the market-neutral strategy hedge funds in Chinese A-share market.

The analyses in the paper are conducted to study the market-neutral characteristics by means of index analysis, correlation analysis, β-neutral analysis and the three-factor model analysis.

The results show that the performance advantage of the market-neutral strategy hedge funds is obvious. Most market-neutral strategy funds are exposed to market risks and the α strategy funds also have obvious style factor exposure; strictly speaking, all of the market-neutral strategies have not reached the “market-neutral” requirements. This paper also finds that Chinese trading restrictions on stock index futures in September 2015 have a significant impact on Chinese market-neutral strategy hedge funds.

The conclusion of this paper has a certain reference value for understanding the risk characteristics and possible problems of hedge funds in emerging markets, and also has important reference value for investors.

The purpose of this paper is to examine the performance of Chinese mutual funds during the period of January 2000 to July 2013. Emerging market funds provide investors with alternative risk exposure for their portfolios. The Chinese market has developed rapidly and differs from developed markets regarding wide range of market and economic characteristics, including size, liquidity, and regulation. The performance of these funds is investigated by using various risk adjusted measures. The study also compares performances of mutual fund subgroups and explains the factors influencing their performances.

This is an empirical paper using various risk performance measures. These measures include the Sharpe ratio, Information ratio, Treynor ratio, M-squared and Jensen’s α. The data comprises 1,037 funds. These funds are further divided into ten subgroup of funds based on their classification: equity (484); aggressive allocation (95 funds); conservative allocation (18 funds); moderate allocation (85 funds); aggressive bond (92 funds); normal bond (52 funds); guaranteed (29 funds); money market (53 funds); and QDII funds (119 funds). A cross-sectional analysis of fund performance is performed using Sharpe and Jensen’s measures as dependent variables and fund-specific variables (Age, Turnover, Tenure, Frontload, Redemption fees, and Management fees), market-specific variables (P/E ratio, P/B ratio, Market capitalization), and fund types as independent variables.

The findings show that Chinese funds generate positive αs for their investors. The highest return is provided with aggressive allocation funds followed by moderately aggressive allocation funds. The average Jensen’s α is the highest in aggressive allocation funds. QDII funds do not provide significant positive αs; in several instances αs are negative. Further analysis of sub-periods show that Chinese funds do not consistently provide excess returns and show great variations. The study also finds that older funds, funds with higher fees, high price to book ratio, and smaller funds continue to perform better than other funds.

This study adds value by focussing on Chinese funds and risk/return characteristics of these funds. The research will further explore factors explaining these returns.