Investment fund selection techniques from the perspective of Brazilian pension funds

ABSTRACT The aim of this article was to evaluate the effectiveness of investment fund selection techniques from the perspective of Brazilian pension funds. Asset liability management (ALM) and liability driven investment (LDI) strategies are usually adopted to guide pension fund managers in relation to strategic allocation in asset classes that should compose their investment portfolios and to the liquidity needed in each period, but not specifying in which assets to allocate resources from among the infinity of assets available in the financial market. This article contributes to tactical management in the fixed income and stock segments outsourced via funds and demonstrates that adopting simple indicators can increase investment performance. The article broadens the knowledge on pension fund investment decisions and creates confidence in the adoption of the Sharpe ratio as a technique for choosing investment funds. We analyzed the returns obtained by hypothetical portfolios built using the following techniques: (i) the Sharpe ratio; (ii) the alpha of a multifactor model; (iii) data envelopment analysis (DEA) efficiency; and (iv) the different combinations of these techniques. We considered information on 369 funds from 2013 to 2018, adopting 12 temporal windows for choosing and re-evaluating the portfolios. The returns obtained were compared with the mean actuarial goal of the benefits plans administered by the pension funds, by means of the unplanned divergence (UD). When outsourcing pension fund investments in fixed income and stock investment funds it was verified that the Sharpe ratio contributes significantly to pension fund performance, compared with other indicators and techniques or a combination of them.

A comparison of minimum variance and maximum Sharpe ratio portfolios for mainstream investors

PurposeMotivated by the recent theoretical rehabilitation of mean-variance analysis, the authors revisit the question of whether minimum variance (MinVar) or maximum Sharpe ratio (MaxSR) investment weights are preferable in practical portfolio formation.Design/methodology/approachThe authors answer this question with a focus on mainstream investors which can be modeled by a preference for simple portfolio optimization techniques, a tendency to cling to past asset characteristics and a strong interest in index products. Specifically, in a rolling-window approach, the study compares the out-of-sample performance of MinVar and MaxSR portfolios in two asset universes covering multiple asset classes (via investable indices and their subindices) and for two popular input estimation methods (full covariance and single-index model).FindingsThe authors find that, regardless of the setting, there is no statistically significant difference between MinVar and MaxSR portfolio performance. Thus, the choice of approach does not matter for mainstream investors. In addition, the analysis reveals that, contrary to previous research, using a single-index model does not necessarily improve out-of-sample Sharpe ratios.Originality/valueThe study is the first to provide an in-depth comparison of MinVar and MaxSR returns which considers (1) multiple asset classes, (2) a single-index model and (3) state-of-the-art bootstrap performance tests.

Measuring Islamic Stock Performance in Indonesia with A Modified Sharpe Ratio

Since the late 1960s, one of the stock performance analysis tools commonly used is Sharpe Ratio. The Sharpe Ratio consists of three components, namely stock return, risk-free returns, and stock risk. Many studies approach risk-free returns with interest rates, including when measuring the performance of Islamic stocks, while interest rates are prohibited in the concept of Islamic finance. Moreover, the stock risk is measured by a standard deviation which assumes returns are normally distributed, while many stock returns are non-normally distributed. This paper intends to measure the performance of Islamic stocks listed on the Indonesian Stock Exchange (IDX) for the period of January 2011 to July 2018 using a modified Sharpe Ratio. The ratio is modified by replacing the interest rate with four approaches: eliminating the interest rate, changing with zakah rates, changing with inflation, changing with the nominal gross domestic product, and replacing the risk measurement from Standard Deviation to Value at Risk (VaR). The findings provide almost the same results as the original measurement and thus, show very high suitability for using these models in other circumstances. Therefore, on the concept of Islamic finance, risk-free returns can be measured using these four approaches, especially inflation and GDP. This study also recommends inflation and GDP to measure risk-free returns in the Sharia's Compliant Asset Pricing Model (SCAPM) or Islamic Capital Asset Pricing Model (ICAPM).====================================================================================================ABSTRAK – Pengukuran Kinerja Saham Syariah di Indonesia menggunakan Sharpe Ratio Modifikasi. Sejak akhir 1960-an, salah satu alat mengukur kinerja saham yang biasa digunakan adalah Sharpe Ratio. Model Sharpe Ratio terdiri atas tiga komponen, yaitu return saham, return bebas risiko, dan risiko saham. Return bebas risiko diukur mengunakan variabel suku bunga yang digolongkan riba dan dilarang dalam konsep keuangan islam. Sedangkan risiko saham diukur dengan standar deviasi yang mengasumsikan data berdistribusi normal. Paper ini bertujuan untuk mengukur kinerja saham syariah yang terdaftar pada Bursa Efek Indonesia (BEI) untuk periode Januari 2011 sampai Juli 2018 dengan menggunakan Sharpe Ratio modifikasi. Kajian akan memodifikasi model Sharpe Ratio dengan mencari variabel alternatif penganti suku bunga dengan empat pendekatan, yaitu: menghilangkan variabel suku bunga tersebut, mengganti dengan zakat rate, mengganti dengan inflasi, dan mengganti dengan produk domestik bruto, serta mengganti standar deviasi dengan Value at Risk (VaR) sebagai pengukur risiko saham yang selanjutnya diimplementasikan pada pasar modal syariah di Indonesia periode Januari 2011 - Juli 2018. Hasil kajian menunjukkan kesesuaian yang sangat tinggi untuk hasil pengukuran kelima model tersebut. Dilihat dari kedekatan hasil pengukuran kinerja, kelima model tersebut dapat dikelompokkan menjadi dua, yaitu model dengan tingkat suku bunga, inflasi, dan PDB sebagai kelompok pertama, sedangkan model tanpa suku bunga dan tingkat zakat sebagai kelompok kedua

PERBANDINGAN KINERJA PORTOFOLIO SAHAM DI JAKARTA ISLAMIC INDEX DAN IDX30 PERIODE 2016–2018

ABSTRAKPenelitian ini bertujuan untuk mengetahui perbedaan antara kinerja portofolio saham Jakarta Islamic Index (JII) dan IDX30 periode 2016–2018. Jenis penelitian ini adalah penelitian verifikatif dengan metode explanatory survey dan menggunakan teknik statistik komparatif. Penelitian ini menggunakan metode analisis Markowitz dengan pendekatan minimum variance. Sampel yang digunakan adalah 189 saham Jakarta Islamic Index (JII) dan 200 saham IDX30. Hasil pengujian kinerja portofolio dengan menggunakan uji beda independent sample t-test, tidak terdapat perbedaan antara kinerja portofolio Jakarta Islamic Index (JII) dengan kinerja portofolio IDX30. Kemudian, dari hasil perhitungan Sharpe Ratio pada Jakarta Islamic Index (JII) dan IDX30 pada setiap periodenya bernilai positif. Hal ini menunjukkan bahwa portofolio dari kedua indeks selalu memperlihatkan kinerja yang bernilai positif atau baik. Implikasinya adalah tidak ada return tambahan yang dapat diperoleh investor dengan cara membedakan saham yang memiliki kiteria syariah dengan yang bukan syariah. ABSTRACTThis study aims to determine the difference between the performance of the Jakarta Islamic Index (JII) and IDX30 stock portfolios for the 2016–2018 period. This type of research is a verification research with an explanatory survey method and using comparative statistical techniques. This research uses Markowitz analysis method with Minimum Variance approach. The sample used is 189 shares of Jakarta Islamic Index (JII) and 200 shares of IDX30. The results of portfolio performance testing using the independent sample t-test difference test, there is no difference between the performance of the Jakarta Islamic Index (JII) portfolio and the performance of the IDX30 portfolio. Then, from the results of the calculation of the Sharpe Ratio on the Jakarta Islamic Index (JII) and IDX30 in each period it is positive, this shows that the portfolios of the two indexes always show positive or good performance. The implication is that there is no additional return that can be obtained by investors by distinguishing stocks that have sharia criteria from those that are not sharia.

Risk-adjusted return, fund manager efficacy, and fund characteristics – An inquiry

In this study, I examine the risk-adjusted return of mutual funds in India. A data set of 4220 mutual funds is used for the analysis. Sharpe ratio, a metric of risk-adjusted return (Sharpe, 1994) and Information ratio, a metric of outperformance than a fund’s benchmark (Goodwin, 1998) were analyzed. Regression analysis is used to estimate the impact of fund characteristics like fund category, fund type, fund access type, corpus size on the dependent variables i.e., Sharpe Ratio and the Information Ratio. All the funds underperformed in both the Sharpe ratio and Information ratio. Liquid funds found worst. Fund type and corpus size do not impact fund performance. Fund access type was found to be significant on fund performance. The results add to the literature by examining the post-pandemic period.

Algo-Trading using Statistical Learning and Optimizing Sharpe Ratio and Drawdown

Modernization in computers and Machine Learning have created new opportunities for improving the methods involved in trading, Changes have been noticed parallelly at the level of investment decisions, and at the faster executions of trades via algorithms. Nowadays 90% of the trades are placed by algorithms, to execute a transaction, algorithms that follow a trend and construct a set of instructions are used in algorithmic trading. It executes the trades more precisely by precluding the effect of human feelings on trading. It all started way back in the 20th century and nowadays it’s becoming more and more competitive, with more big players entering the market every day. Our research aims to advance the market revolution by developing an Algorithmic Trading approach that will automatically trade user strategies alongside its own algorithms for intraday trading based on different market conditions and user approach, and throughout the day invest and trade with continuous modifications to ensure the best returns for day traders and investors.

Socially Responsible Investment Portfolio Construction with a Double-Screening Mechanism considering Machine Learning Prediction

Although socially responsible investment (SRI) has developed into an important investment style, only a small number of studies discuss SRI portfolio construction. In view of the overwhelming breakthrough of machine learning in prediction, this paper proposes SRI portfolio construction models by combining a double-screening mechanism considering machine learning prediction and an extended global minimum variance (GMV) model (or extended maximum Sharpe ratio (MSPR) model), which are, respectively, named double-screening socially responsible investment (DSSRI) portfolio models I and II. The proposed models consist of two stages, i.e., stock screening and asset allocation. First, this paper develops a novel double-screening mechanism incorporating environmental, social, and corporate governance (ESG) and return potential criteria to ensure that high-quality stocks with good ESG performance and high-return potential are input into the optimal portfolio. Specifically, to obtain accurate stock return predictions, an extreme learning machine model optimized by the genetic algorithm is employed to predict stock prices. Next, to trade off the financial and ESG objectives of SRI investors, an extended GMV model (or extended MSPR model) considering the ESG factor is introduced to determine the capital allocation proportion of the stocks. We take the A-share market of China as the sample to verify the effectiveness of the proposed models. The empirical results demonstrate that compared with alternative models, the proposed models can yield better annualized return and ESG score performance as well as competitive Sharpe ratio performance.

Conventional Versus Sharia Money Market Mutual Funds: Which Performs Better During the Covid-19 Pandemic?

This study aims to determine whether conventional money market mutual funds perform better than sharia money market mutual funds or vice versa during the COVID-19 pandemic in Indonesia. This research method is descriptive with a quantitative comparison approach. This study employed secondary data obtained from IDX, Indonesian Bank, and Pasar Dana website. The research employed the money market mutual funds data, Net Asset Value, BI 7 Days Repo rate during year 2020. Sharpe ratio utilized in this research to determine the money market mutual funds performance. Then, the result compared by using Independent sample T-test on SPSS. The result uncovers that in general the performance of conventional money market mutual funds performance superior the sharia money market mutual funds performance during covid-19 in Indonesia. However, both mutual funds average Sharpe ratio show the negative number during 2020. Moreover, there are no significant difference between conventional and sharia money market mutual funds returns during the period 2020. The high different return on the maximum return due to some conventional mutual fund perform exceptional during 2020.

Comparison of Performance from Green Bonds and Conventional Bonds Traded on the Indonesia Stock Exchange

Bonds are types of securities in the form of a debt acknowledgment letter for loan money from the public in a certain form, but with a minimum tenor of three years and promise of interest rewards in which the amount and payment have been determined in advance. Looking at the current global problems regarding degradation of environmental equality and climate change, bonds were developed where the proceeds of issuance were exclusively applied to finance environmentally friendly projects, is green bonds. However, the issuance of green bonds in Indonesia is slight. This research aims to find out the comparison of individual performance of green bonds and conventional bonds traded on the Indonesia Stock Exchange. The method used to measure performance is Sharpe Ratio. The result indicates that performance of green bond worse than conventional bond. This research can be used as a consideration for investor in making investment based on performance.