Managers’ skills and fund flows in the Japanese mutual fund market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kozo Omori ◽  
Tomoki Kitamura
Keyword(s):  
Asset Pricing ◽  
Mutual Fund ◽  
Factor Model ◽  
Abnormal Returns ◽  
Search Costs ◽  
Fund Flows ◽  
Mutual Fund Managers ◽  
Content Type ◽  
Fund Managers ◽  
Retail Investors

Purpose Mutual fund investors assess a fund manager’s skills when allocating their capital. To identify the rationale behind retail investors’ decisions, this study aims to examine the relation between mutual fund flows and abnormal returns (alpha), as well as the various risk factors in the Japanese mutual fund market, which has distinctive characteristics regarding investors and distributors. Design/methodology/approach Six standard asset pricing models are used to investigate how investors assess mutual fund managers’ skills: the market-adjusted return, the capital asset pricing model and the Fama–French three-factor model and its augmented versions. Findings Contrary to the literature, this study finds that investors in Japan mainly rely on alpha to assess mutual funds. In particular, investors respond to alpha for fund inflows and their evaluations depend on the market environment and their mutual fund search costs. Originality/value This study measures the response of investors to the skills of mutual fund managers in the Japanese market – especially for funds purchased through bank-related distributors that have aimed to capture inexperienced retail investors since deregulation in the 1990s – and reveals their high response to alpha.

Evaluating alternative performance benchmarks for Indian mutual fund industry

2017 ◽  
Vol 14 (2) ◽  
pp. 222-250 ◽  
Author(s):  
Sanjay Sehgal ◽  
Sonal Babbar
Keyword(s):  
Asset Pricing ◽  
Mutual Fund ◽  
Factor Model ◽  
Five Factor Model ◽  
Content Type ◽  
Asset Pricing Model ◽  
Fund Managers ◽  
Asset Pricing Models ◽  
Performance Benchmarks ◽  
Fama And French

Purpose The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context. Design/methodology/approach Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Elton et al. (1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model. Findings Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios. Practical implications A significant α generated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking. Originality/value The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.

Do mutual fund managers' possess style liquidity timing abilities?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mahfooz Alam ◽  
Valeed Ahmad Ansari
Keyword(s):  
Mutual Fund ◽  
Factor Model ◽  
Market Timing ◽  
Market Liquidity ◽  
Content Type ◽  
Fund Managers ◽  
Indian Context ◽  
Equity Mutual Funds ◽  
Equity Funds ◽  
Style Timing

PurposeThis paper investigates the style timing and liquidity style timing vis-à-vis the market, size, value and momentum factors of the actively managed Indian equity mutual funds.Design/methodology/approachWe examine the style timing of the funds using the augmented Carhart four-factor model by incorporating timing measures (Treynor and Mazuy; Henriksson and Merton). Based on this, the study explores the four-factor liquidity and volatility style timing exhibited by fund managers. The sample is from April 2000 to March 2018 and spans the volatile 2008 subprime economic crises. The sample comprised 182 actively managed equity funds from various sizes and was considered to be a well-diversified sample.FindingsThe results of our study provide strong evidence of market liquidity timing in India. No other style timing skills are observed in our analysis. Our results also imply that the fund managers might misidentify size timing as market timing if integrated liquidity timing measures are not employed, leading to false conclusions.Research limitations/implicationsThe findings of our study imply that the fund managers might misidentify size timing as market timing if integrated liquidity timing measures are not employed, leading to false conclusions.Originality/valueThis study, to our knowledge, is the first attempt to investigate the portfolio-based style timing in the Indian context.

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.

Social interactions and mutual fund portfolios: the role of alumni networks in China

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quanxi Liang ◽  
Jiangshan Liao ◽  
Leng Ling
Keyword(s):  
Social Interactions ◽  
Mutual Fund ◽  
Information Dissemination ◽  
Significant Risk ◽  
Investment Decisions ◽  
Multiple Linear Regression Model ◽  
Data Set ◽  
Mutual Fund Managers ◽  
Content Type ◽  
Fund Managers

PurposeThis paper aims to investigate the influence of social interactions on mutual fund portfolios from the perspective of alumni network in China.Design/methodology/approachBased on a data set that consists of 162 actively managed equity funds in China during the time period of 2003–2014, this study employs multiple linear regression model to control for organization- and location-based interpersonal connections as well as other confounding factors and clarify the causality relationship between alumni networks of mutual fund managers and their portfolios.FindingsAfter controlling for organization- and location-based interpersonal connections, we find that mutual fund managers who graduated from the same college/university have more similar stock holdings and are more likely to buy or sell the same stocks contemporaneously. As a result, alumni managers exhibit a higher correlation of fund returns. Moreover, the effect of alumni relationship on mutual fund investments becomes weaker when more managers are connected within the network. We also find that valuable information is shared among alumni managers: (1) the average returns for the alumni common holdings portfolios is significantly higher than those for non-alumni holdings portfolios and (2) a long-short strategy composed of stocks purchased minus sold by alumni managers yields positive and significant risk-adjusted returns.Practical implicationsThe findings suggest that information dissemination among connected fund managers could be one of the driving forces for mutual fund herding behavior, and that a portfolio of funds whose managers are educationally connected could be highly exposed to certain stocks and risks.Originality/valueThis paper contributes to the growing finance literature addressing the influence of personal connections on information dissemination that specifically contributes to price formation. It corresponds more closely to Cohen et al. (2008), who investigate college alumni connections between fund managers and corporate board members. Since the authors simultaneously examine three potentially overlapped social networks, which are based on education, locality and fund family, the authors are able to disentangle their effects on fund managers' investment decisions. Moreover, the findings suggest that institutional investors make investment decisions based on share private information, and therefore, it also contributes to the literature on fund herding behaviors (Grinblatt et al., 1995; Wermers, 1999).

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.

scholarly journals Asset Pricing Models and Stock Selection Ability of the Indian Mutual Fund Managers: An Empirical Study of Open-ended Growth Equity Schemes

2019 ◽  
Vol 3 (3) ◽  
pp. 49-62
Author(s):  
Kamal Gupta
Keyword(s):  
Asset Pricing ◽  
Mutual Fund ◽  
Equity Capital ◽  
Financial Resources ◽  
Stock Selection ◽  
Pricing Models ◽  
Mutual Fund Managers ◽  
Fund Managers ◽  
Asset Pricing Models ◽  
The Impact

The paper is devoted to the study of the analysis and forecasting of the possibility of joint investment Fund managers to choose securities for further investment. The methodological tools of the work are presented by models Jensen, Fama & amp; French and Carhart (which allow to assess the ability to select securities by managers of mutual funds). Empirical estimates of the analysis on three models showed that Indian mutual Fund managers have the ability to choose stocks. The author states that the analysis based on the Jensen model characterizes higher potential opportunities for the selection of securities by the managers of India’s joint-stock funds compared to the other two models used in the study. The results of the study can be useful for investors in making investment decisions, in particular in the process of placing their own financial resources in joint investment funds. The paper postulates that investors will be able to choose joint investment schemes in favor of funds, which provide the opportunity to choose securities for investment for more than ten years. The author notes that the key effect of the introduction of such a practice of interaction between investors and funds will be the growth of investor confidence, which will contribute to the accumulation of additional volumes of investments in the joint investment sector. This study is limited only to the schemes of investing their own financial resources, but in the future can be further expanded to the practice of using a wide range of schemes, since the possibility of choosing shares is associated with many financial processes and indicators. Since the study of asset pricing models is a continuous process, the author proposed to study the processes of joint investment in pension funds in the context of assessing the impact of financial indicators such as liquidity, return on investment, profitability. Keywords: investors, funds of collective investment, the ability to stock selection, patterns of growth equity capital.

scholarly journals Can Mutual Fund Managers Pick Stocks? Evidence from Their Trades Prior to Earnings Announcements

2010 ◽  
Vol 45 (5) ◽  
pp. 1111-1131 ◽  
Author(s):  
Malcolm Baker ◽  
Lubomir Litov ◽  
Jessica A. Wachter ◽  
Jeffrey Wurgler
Keyword(s):  
Mutual Fund ◽  
Earnings Announcements ◽  
Abnormal Returns ◽  
Prior Work ◽  
Mutual Fund Managers ◽  
Earnings Announcement ◽  
Fund Managers ◽  
Earnings Surprises ◽  
Corporate Earnings ◽  
Stock Picking

AbstractRecent research finds that the stocks that mutual fund managers buy outperform the stocks that they sell (e.g., Chen, Jegadeesh, and Wermers (2000)). We study the nature of this stock-picking ability. We construct measures of trading skill based on how the stocks held and traded by fund managers perform at subsequent corporate earnings announcements. This approach increases the power to detect skilled trading and sheds light on its source. We find that the average fund’s recent buys significantly outperform its recent sells around the next earnings announcement, and that this accounts for a disproportionate fraction of the total abnormal returns to fund trades estimated in prior work. We find that mutual fund trades also forecast earnings surprises. We conclude that mutual fund managers are able to trade profitably in part because they are able to forecast earnings-related fundamentals.

scholarly journals Is It Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance

2018 ◽  
Vol 53 (6) ◽  
pp. 2491-2523 ◽  
Author(s):  
Chuan-Yang Hwang ◽  
Sheridan Titman ◽  
Yuxi Wang
Keyword(s):  
Mutual Funds ◽  
Initial Public Offerings ◽  
Mutual Fund ◽  
Abnormal Returns ◽  
Fund Performance ◽  
Mutual Fund Performance ◽  
Mutual Fund Managers ◽  
Public Offerings ◽  
Fund Managers ◽  
Elite Universities

Mutual fund managers with degrees from elite universities tend to outperform their counterparts from less elite universities. We show that the better performance of elite graduates is generated from their better connections with underwriters that facilitate allocations to underpriced initial public offerings (IPOs). Indeed, we find that the funds outperformonlyin months when they are connected to underwriters issuing IPOs. A strategy of buying mutual funds in months when they are connected to underwriters scheduled to issue IPOs generates significant abnormal returns, as high as 4.08% per annum in hot markets.

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.

Is there a Ramadhan effect on Sharia mutual funds? Evidence from Indonesia and Malaysia

2019 ◽  
Vol 13 (1) ◽  
pp. 135-146
Author(s):  
Rofikoh Rokhim ◽  
Irma Octaviani
Keyword(s):  
Mutual Fund ◽  
Strong Predictor ◽  
Abnormal Returns ◽  
Fund Performance ◽  
Excess Return ◽  
Content Type ◽  
Fund Managers ◽  
Daily Data ◽  
Value Effect ◽  
Timing Strategies

Purpose This paper aims to examine whether Sharia mutual fund managers are able to gain abnormal returns from what is called the Ramadhan effect. Design/methodology/approach The authors use GARCH regression on daily data of domestic Sharia mutual fund performance in Indonesia and Malaysia over the period of 2007-2017. Findings The authors find that the Ramadhan effect is not a strong predictor of Sharia fund excess return in Indonesia and Malaysia, and they identify a positive Ramadhan abnormal return on the Malaysia Sharia Equity Fund. This result shows there is size effect on sharia fund excess return in Indonesia and value effect on Sharia Balanced Fund in both markets. It is suggested that the effect of market excess return in Indonesia is stronger than in Malaysia. Research limitations/implications The samples are limited to Sharia Funds over the period 2007-2017. Practical implications The authors suggest that size and value effect could be considered to develop the selection and timing strategies to explore the Ramadhan effect. Originality/value This study focuses on Indonesia and Malaysia, the two largest Islamic Stock Markets in Southeast Asia and examines specific on Sharia Mutual Fund (equity and balanced fund). It also compares differences in total performance measures between the Ramadhan period and non-Ramadhan period.

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