Testing the skill of mutual fund managers: evidence from India

2015 ◽  
Vol 41 (8) ◽  
pp. 806-824 ◽  
Author(s):  
Prateek Sharma ◽  
Samit Paul
Keyword(s):  
Mutual Funds ◽  
Cross Section ◽  
Mutual Fund ◽  
Statistical Tests ◽  
Emerging Market ◽  
Performance Measure ◽  
Mutual Fund Managers ◽  
Content Type ◽  
Fund Managers ◽  
Investor Expectations

Purpose – The purpose of this paper is to utilize a constrained random portfolio-based framework for measuring the skill of a cross-section of Indian mutual fund managers. Specifically, the authors test whether the observed performance implies superior investment skill on the part of mutual fund managers. Additionally, the authors investigate the suitability of mutual fund investments under diverse investor expectations. Design/methodology/approach – The authors use a new skill measurement methodology based on a cross-section of constrained random portfolios (Burns, 2007). Findings – The authors find no evidence of superior investment skill in the sample of Indian equity mutual funds. Using a series of statistical tests, the authors conclude that the mutual funds fail to outperform the random portfolios. Furthermore, mutual funds show no persistence in their performance over time. These results are robust to choice of performance measure and the investment horizon. However, mutual funds provide lower downside risks and may be suitable for investors with high degree of risk aversion. Originality/value – The authors extend Burns’ (2007) methodology in several aspects, especially by using a much wider range of performance and downside risk measures to address diverse investor expectations. To the best of the authors’ knowledge, this is first study to apply the constrained random portfolios-based skill tests in an emerging market.

Prepare for the magnifying glass: SEC hikes scrutiny of asset managers – 4 steps to consider

2015 ◽  
Vol 16 (1) ◽  
pp. 49-51
Author(s):  
Perrie Michael Weiner ◽  
Patrick Hunnius ◽  
Grant Alexander
Keyword(s):  
Mutual Funds ◽  
Asset Management ◽  
Hedge Funds ◽  
Mutual Fund ◽  
Sudden Change ◽  
Protective Measure ◽  
Mutual Fund Managers ◽  
Content Type ◽  
Fund Managers ◽  
Asset Managers

Purpose – To discuss the Securities and Exchange Commission’s (SEC’s) likely preparation of new rules to increase the monitoring and oversight of various asset funds, including hedge funds and alternative mutual funds, and recommends protective measure for fund managers to take. Design/methodology/approach – Discusses the SEC’s increasing concerns about risks related to the asset management industry and how those concerns may lead to additional scrutiny and regulation. Recommends four steps for alternative mutual fund managers to take at this time to protect their interests. Findings – The SEC’s potential regulatory action is in response to apparent increasing concern that the multitrillion-dollar asset management industry could create substantial instability to the financial system with the occurrence of a significant event, such as a sudden change in interest rates or widespread investor redemptions. It has been suggested that the proposed sweep of alternative mutual funds is part of a larger strategy by the SEC to bring the alternative mutual funds, and similarly situated entities such as asset managers and hedge funds, under the same regulatory umbrella imposed upon large banks and similarly situated financial institutions in response to the 2008 recession. Practical implications – Preparation will go a long way in dealing with what appears to be a developing mine field of new regulations, and potential enforcement actions, from the federal government. Originality/value – Knowing that increasing SEC scrutiny, such as inquiries and subpoenas, may be just around the corner, the precautionary measures outlined in this article will help alternative mutual fund managers protect their interests.

scholarly journals Market Timing and Stock Selection Ability of Mutual Funds in India: An Empirical Investigation

2007 ◽  
Vol 32 (2) ◽  
pp. 39-52 ◽  
Author(s):  
Soumya Guha Deb ◽  
Ashok Banerjee ◽  
B B Chakrabarti
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Emerging Market ◽  
Market Timing ◽  
Public Information ◽  
Superior Performance ◽  
Stock Selection ◽  
Mutual Fund Managers ◽  
Fund Managers ◽  
Timing Ability

Evaluation of performance of mutual funds and identification of successful fund managers are of great interest to both investors and academicians. Two possible methods that are presumed to be used by fund managers for generating superior performance are identified as: Market timing: Market timing skills imply assessing correctly the direction of the market, whether bull or bear, and positioning their portfolios accordingly. Stock selection: Stock selection skills involve micro forecasting, which generally forecasts price movements of individual stocks relative to stocks and identification of individual stocks that are under-or over-valued relative to equities in general. The two pioneering works in this field is by Treynor Mazuy( 1966) and Henriksson Merton ( 1981). They developed two different models for testing the market timing and stock selection abilities of the fund managers but found little evidence of timing by the fund managers in their samples. Most of the other works mentioned in the paper have used these two models (which we name as traditional/unconditional models) or slight variations of the same for testing market timing and stock selection abilities of the fund managers. Person and Scadt (1996) modified the classical performance measures (of timing and stock selection ability) to take account of well-known information variables like interest rate, market dividend yield, etc. They termed it as ‘conditional approach’ of measuring mutual fund performance and claimed that conditioning on public information controls for biases in traditional market timing and stock selection models. Traditional models have taken the view that ‘any information’ correlated with the future market returns is superior information; in other words, they are unconditional models. Person and Scadt's approach used basically the same simplifying assumptions as the traditional models but they assumed, in addition, semi-strong form of market efficiency. The idea was to distinguish between market timing based on public information from market timing information that is superior to the lagged publicly available information variables. Although the academic literature on stock selection and market timing ability of mutual fund managers is rich and spans several decades, not many studies exist on this issue using emerging market data. This paper attempts to find the stock selection and market timing abilities of the Indian mutual fund managers using unconditional as well as conditional approaches. With a sample of 96 Indian mutual fund schemes, a lack of market timing ability and presence of stock selection ability were observed among the Indian funds managers in both unconditional as well as conditional approaches. A pooled regression was carried out for various categories of funds as well as for the entire sample, which also showed a lack of market timing abilities and presence of stock selection abilities.

scholarly journals Sub-Par Performance In A Sub-Prime World? A Recent Comparative Performance Analysis Of Real Estate Mutual Funds Vs. Common Stock Mutual Funds

2011 ◽  
Vol 7 (8) ◽  
Author(s):  
James L. Kuhle ◽  
Rafiqul Bhuyan
Keyword(s):  
Real Estate ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Font Size ◽  
Comparative Performance ◽  
Mutual Fund Managers ◽  
Fund Managers ◽  
Equity Mutual Funds ◽  
Real Estate Investments ◽  
Real Estate Assets

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman;"><span style="font-size: 10pt; mso-bidi-font-style: italic;">Historically, </span><span style="font-size: 10pt; mso-bidi-font-style: italic; mso-ansi-language: EN;" lang="EN">little evidence has been found to suggest that real estate investments exhibit superior returns. Further, it appears that real estate mutual fund managers do not possess the ability to consistently beat benchmark averages. However, there have been mixed results for REITs indicating they might be characterized by inefficiencies that could be exploited by informed fund managers. In this analysis, we examine whether mutual fund managers who have concentrated in real estate assets have statistically outperformed other categories of equity mutual funds as well as the S&amp;P 500 and various NAREIT Indexes. </span></span></p>

Adjusting for risk factors in mutual fund performance and performance persistence

2019 ◽  
Vol 20 (4) ◽  
pp. 352-369 ◽  
Author(s):  
Drosos Koutsokostas ◽  
Spyros Papathanasiou ◽  
Dimitris Balios
Keyword(s):  
Risk Factors ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Nonparametric Tests ◽  
Performance Measure ◽  
Performance Persistence ◽  
Momentum Effect ◽  
Content Type ◽  
Equity Mutual Funds ◽  
Fama And French

Purpose The purpose of this paper is to examine the performance of Greek equity mutual funds and the persistence in annual performance for the period 2008-2017 by using a variety of performance models. Design/methodology/approach Using all the available funds in operation and daily data, the authors apply single-index (Jensen, 1968) and multi-factor models (Fama and French, 1993; Carhart, 1997) to measure risk-adjusted returns. To assess performance persistence, a series of parametric (Bollen and Busse, 2005) and nonparametric tests (Malkiel, 1995; Brown and Goetzmann, 1995; Kahn and Rudd, 1995) is implemented. Findings Results show that the Greek equity mutual funds perform, on average, worse than the market index, irrespective of the performance measure applied, and the estimations obtained by the models are similar. Few managers that followed large-cap strategies, pursued stocks with high book-to-market value ratio and eliminated their exposure to the momentum effect were able to add value to their portfolios. Furthermore, a winner-picking strategy based on sustained superior performers is questioned. However, assigning fund returns to the corresponding risk factors results in the partial disappearance of persistence in performance. Originality/value The sample period includes the turbulent period, following the introduction of capital controls, which affected capital flows significantly. Moreover, the application of multiple performance measures enables us to investigate performance persistence in a wider spectrum.

Mutual fund manager turnover: an empirical investigation of performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Avinash Ghalke ◽  
Shripad Kulkarni
Keyword(s):  
Mutual Fund ◽  
Emerging Market ◽  
Investment Strategy ◽  
Fund Performance ◽  
Fund Manager ◽  
Content Type ◽  
Fund Managers ◽  
Fund Families ◽  
Study Methodology ◽  
Factor Alpha

PurposeWhen a fund manager leaves, the investment strategy of the fund changes or remains the same. The departing fund manager's resignation is either forced or voluntary. The study investigates the relationship between the portfolio manager's transition and the fund's investment strategy and how the change affects the mutual fund returns in the subsequent period.Design/methodology/approachThe authors examine 148 fund manager changes in India between April 2005–March 2018 using three performance measures: abnormal return (fund return minus benchmark return), Jensen's alpha and Carhart four-factor alpha. The analysis includes an event study methodology, followed by a two-step Fama–MacBeth regression approach.FindingsContrary to the previous studies conducted in the developed markets, the authors find that fund performance improves irrespective of whether the fund manager change is forced or voluntary. The outperformance after the fund manager's exit is significant for funds belonging to the larger fund families.Originality/valueIn the context of investment management, the authors provide a conceptual framework to understand the effect of fund manager exit on mutual fund performance. The authors substantiate their arguments with empirical evidence. To the best of the authors' understanding, this is the first research to examine the effect of changing mutual fund managers in an emerging market setting.

Manipulation and performance persistence: an examination of Iranian equity mutual fund performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mahsa Hosseini ◽  
Mohammad Khodaei Valahzaghard ◽  
Ali Saeedi
Keyword(s):  
Mutual Funds ◽  
Performance Measures ◽  
Mutual Fund ◽  
Performance Measure ◽  
Performance Persistence ◽  
Content Type ◽  
Lower Tertile ◽  
Time Horizons ◽  
Equity Mutual Funds ◽  
And Performance

Purpose This paper aims to study manipulation and performance persistence in equity mutual funds. To this end, Manipulation-Proof Performance Measure (MPPM) and Doubt Ratio, along with a number of current performance measures are used to evaluate the performance of equity mutual funds in Iran. Design/methodology/approach The authors investigate performance manipulation by 1) comparing the results of the MPPM with the current performance measures, 2) checking the Doubt Ratio to detect suspicious funds. Additionally, the authors investigate performance persistence by forming and evaluating portfolios of the equity mutual funds at several time horizons. Findings The authors conclude that there is no evidence of performance manipulation in the equity mutual funds. Additionally, when comparing the performance of the upper (top) tertile portfolios and the lower tertile portfolios, in all of the studied 1, 3, 6 and 12-month horizons, the authors find performance persistence in the equity mutual funds. Originality/value To the best of the authors’ knowledge, this research is the first study to investigate the performance manipulation in the Iranian equity mutual funds, and also is the first study in Iran that uses the MPPM and the Doubt Ratio in addition to a number of current performance measures to investigate the performance persistence in the equity mutual funds at several time horizons.

scholarly journals Manager-Investor Conflicts in Mutual Funds

2004 ◽  
Vol 18 (2) ◽  
pp. 161-182 ◽  
Author(s):  
Paul G Mahoney
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Conflicts Of Interest ◽  
Cash Flows ◽  
Third Parties ◽  
Mutual Fund Managers ◽  
Legal Proceedings ◽  
Fund Managers ◽  
Retirement Accounts ◽  
Regulatory Proposals

Half of all of U.S. households own shares in one or more mutual funds, either directly or through personal or employer-sponsored retirement accounts. This article describes the structure and regulation of mutual funds and the resulting incentives facing those who make decisions for the funds. After providing some basic institutional details, it focuses on the cash flows from mutual fund investors to fund managers, brokers, and other third parties and the associated conflicts of interest. The article concludes with a summary of recent legal proceedings against mutual fund managers and brokers based on improper trading practices and regulatory proposals to curb those practices.

Dynamic Liquidity Preferences of Mutual Funds

2020 ◽  
Vol 10 (04) ◽  
pp. 2050018
Author(s):  
Jiekun Huang
Keyword(s):  
Mutual Funds ◽  
Dynamic Behavior ◽  
Mutual Fund ◽  
Market Volatility ◽  
Cross Sectional ◽  
Mutual Fund Managers ◽  
Fund Managers ◽  
Equity Mutual Funds ◽  
Large Panel ◽  
Dynamic Preferences

This paper examines the relation between expected market volatility and open-end mutual funds’ liquidity preferences. Using a large panel of actively managed U.S. equity mutual funds, I show that mutual fund managers hold more cash and tilt their holdings more heavily towards liquid stocks during periods when expected market volatility is high. Cross-sectional tests suggest that the dynamic preferences for liquidity are driven by concerns over investor withdrawals during volatile times. Furthermore, I find evidence that this type of dynamic behavior leads to higher fund returns.

Sustainability-themed mutual funds: an empirical examination of risk and performance

2018 ◽  
Vol 19 (3) ◽  
pp. 247-261 ◽  
Author(s):  
Federica Ielasi ◽  
Monica Rossolini ◽  
Sara Limberti
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Investment Strategies ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Fund Managers ◽  
And Performance ◽  
Sustainable And Responsible Investment ◽  
Ethical Funds

PurposeThis paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement different sustainable and responsible investment strategies.Design/methodology/approachThe study refers to a European sample of 106 ethical funds and 51 sustainability-themed funds. The monthly performance of each fund is downloaded from Bloomberg for the period from January 1996 to December 2015. By applying a Fama and French (1993) three-factor model, the authors overcome the limits of a capital asset pricing model (CAPM) based-single index model, to compare the performance of the two categories of funds.FindingsSustainability-themed funds do not differ significantly from ethical funds in terms of portfolio attributes, except for market capitalization, age and net asset value. Regarding performance measures, the results shows that sustainability-themed funds have a lower underperformance than ethical funds (as measured by Jensen’s alpha), whereas the samples do not differ in terms of market risk (as measured by Beta coefficient). The idiosyncratic risk of sustainability-themed funds is positively influenced by the specific portfolio strategies. The sustainability-themed funds show a higher concentration in the industrial sector and a lower exposure to financial sector than ethical funds; in terms of geographical strategy, they are more global and international oriented; they mainly focus on small caps and value stocks.Research limitations/implicationsThe different sustainable and responsible investment strategies can be applied simultaneously and in a growing number of possible combinations. Mutual fund managers can consider thematic approach as an efficient opportunity for reconciling financial performance and economic sustainability. It is demonstrated that sustainability-themed funds adopt a portfolio strategy significantly different from ethical funds and from the environmental, social and governance benchmarks. Mutual fund managers implement a thematic specialization without any negative impact on the funds returns compared to ethical funds; actually, with a proper diversified portfolio, they are able to reduce idiosyncratic risk.Originality/valueThe analysis is extremely innovative, especially for the thematic sample. During the past 15 years, literature about sustainable and responsible investment has been focused especially on the differences in terms of risk and performance between socially responsible and conventional funds. This paper, starting from the methodology applied in these studies, wants to compare two different types of socially responsible strategies, with a specific focus on sustainability-themed mutual funds, given their exponential growth in the past few years.

Emerging market mutual fund performance: evidence for China

2017 ◽  
Vol 11 (2) ◽  
pp. 167-187 ◽  
Author(s):  
Zia-ur-Rehman Rao ◽  
Muhammad Zubair Tauni ◽  
Amjad Iqbal ◽  
Muhammad Umar
Keyword(s):  
Asset Management ◽  
Mutual Fund ◽  
Factor Model ◽  
Emerging Market ◽  
Market Timing ◽  
Content Type ◽  
Fund Managers ◽  
Developed Markets ◽  
Timing Ability ◽  
Equity Funds

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.

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