Top PDF Can mutual fund managers beat the market?

Can mutual fund managers beat the market?

Can mutual fund managers beat the market?

The table below shows the results of the regression that was performed using the balanced dataset. These results show that all the mutual funds have positive alpha values. This implies that the managers were all able to either select the correct securities or time the market. However, also in this case only some of the funds have positive alpha values, which are statistically significant at a 1% significance level. These are Alfred Berg Norge, Alfred Berg Norge +, Danske Invest Norge I and II, Danske Invest Norge Aksjer Inst I, Delphi Norge, DnB NOR Norge Selektiv II and III, Fondsfinans Spar, PLUSS Aksje, PLUSS Markedsverdi, Storebrand Norge and Warren Wicklund Norge A. In addition, several funds achieved positive alpha values that are statistically significant at a 5% significance level. These are Atlas Norge, Avanse Norge (II), Carnegie Aksje Norge, DnB NOR Norge (III) and (IV), DnB NOR Norge Selektiv (I), Fondsfinans Aktiv, KLP AksjeNorge, Nordea Kapital, Pareto Aksje Norge, Storebrand Aksje Innland, Storebrand Norge I and Storebrand Optima Norge A. Many of these funds are the same that achieved statistically significant results when applying the Jensen’s Alpha model to the unbalanced dataset. Again, if one compares the alpha measure for the balanced data set with the Sharpe and Treynor measure for the third sample period one can see that all the funds, with the exception of Avanse Norge (II), which achieved significantly positive alpha values also outdid the market index.
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Do mutual fund managers beat the market? Evidence from the Johannesburg stock exchange

Do mutual fund managers beat the market? Evidence from the Johannesburg stock exchange

The results of the study are thus three fold. It is found that fund risk, fund size and fund age have no effect on mutual fund performance. However, it is acknowledged that many factors such as fund style, turnover, expense ratio, and management tenure are perceived to have an effect on performance. Exclusion of these variables in the regression thus provides doubt on the current findings. These variables however, were not included due to data limitations. The second result is that there is weak short-term evidence of performance persistence in the funds under investigation, in that outperformance does not happen regularly. This result is more consistent with previous literature such as Wessels and Krige (2005) and Firer et al (2001). Thus, investors cannot rely on past performance to predict future performance of mutual funds. The last and more important result is that of outperformance, a question asked by the title of the study. According to the analysis presented in the top ten equity unit trust are able to outperform the market, though marginally so. The superior returns produced by the funds are 0.47% more than the returns presented by the market.
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Herding by mutual fund managers in the Athens stock exchange

Herding by mutual fund managers in the Athens stock exchange

The present study is subject to certain limitations and shortcomings, which are partially related to the layout of the study per se and partially to the measure utilised. As far as the study is concerned, it should be noticed that the sample does not cover a large proportion of the market, leaving the quality of the results under some dispute. As far as the measure is concerned, although it has been used widely, due to its simplicity and conceptual clarity, it carries certain drawbacks. First of all, the LSV measure cannot identify the reason managers are lead to similar decisions (Voronkova and Bohl, 2005). A severe change in the fundamentals of a firm or in the information available to traders would lead to a value similar to the one observed when great herding occurs. Although such large movements due to rational decision- making are not very likely to appear, nevertheless the values observed must be treated with caution.
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Conditional market-timing models for mutual fund performance

Conditional market-timing models for mutual fund performance

The traditional performance measurement literature has attempted to distin- guish security selection, or stock-picking ability, from market-timing, or the ability to predict overall market returns. However, the literature finds that it is not easy to separate ability into two such dichotomous categories . Traditional unconditional T-M [Treynor, Mazuy, 1966] or H-M [Henriksson, Merton, 1981] models, in addition to their strong assumptions about how managers use their abilities, have taken the view that any information correlated with future market returns is superior information [Ferson, Schadt, 1996, p. 434]. Conditional models of timing and selectivity assume a semi-strong form of market effi-
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Stock Selection Skills of Indian Mutual Fund Managers-An
              Empirical Study of Thematic-Infrastructure Mutual Fund
              schemes

Stock Selection Skills of Indian Mutual Fund Managers-An Empirical Study of Thematic-Infrastructure Mutual Fund schemes

The literature review revealed that performance measures of mutual funds include rate of return, benchmark comparison, risk adjusted returns (Treynor and Sharpe's indices) 'Stock Selectivity' abilities and market timing skills of the fund managers. Lot of studies in the past has been conducted on performance of Indian Mutual funds right from doing evaluation on the returns earned & risk faced by varied types of Mutual fund schemes, but till date an empirical study on assessing Performance of Mutual Fund Managers of India are yet to be undertaken specifically on infrastructure based Equity Mutual Fund Schemes . Hence, the study is an attempt in this direction to evaluate the performance achieved by Indian Mutual fund Managers in terms of Stock Selection Skills.
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Market Returns and Mutual Fund Flows

Market Returns and Mutual Fund Flows

T HE E FFECT OF M AJOR M ARKET D ECLINES To characterize the effects of market returns on mutual fund flows, it is important to examine whether large shocks have special effects. Our instrumental-variable analysis assumes that the effects on flows are proportional to the size of the shocks. We now assess this assumption by taking a closer look at mutual fund flows during five episodes of unusually severe market declines (Table 7). 16 We also look for evidence that the flows perpetuated the declines. The market declines were most pronounced in the bond market in April 1987 and February 1994, in the stock market in October 1987, in the stock and high yield bond markets in October 1989, and in the municipal bond market in November 1994. 17 Although these were the markets most affected, price movements in other markets also tended to be significant; therefore, we also take these markets into account. Finally, we examine whether the funds’ invest- ment managers tended to panic and thus exacerbate the selling in the markets.
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Market Timing Ability of Norwegian Mutual Fund Investors

Market Timing Ability of Norwegian Mutual Fund Investors

Our paper examines the timing ability of Norwegian and foreign mutual fund investors using cash flow data at the individual fund level. We measure this using a “performance gap”, defined as the funds geometric return minus the investors’ dollar-weighted return. Our results show that equity fund investors, in the period 1996-2007, underperform the return on the funds they invested in by a statistically significant 1.32% annually due to their timing decisions. Not only do we show that the average investor is damaging his returns, but we also shed light on which investors are more likely to demonstrate poor timing. Moreover, we show that investors in both large funds and actively managed funds exhibit poor timing performance, while investors in small funds and index funds show evidence of being able to beat the performance of the funds. Our results also provide evidence that investors who use monthly fund schemes or passively invest in mutual funds enjoy an annual performance boost, while investors who actively buy and sell funds significantly underperform the return of the fund they invested in. Finally, our results indicate that foreign investors show both higher timing ability and a higher likelihood of picking superior funds.
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Mutual Fund Managers: Real or Make-Belief Performance .

Mutual Fund Managers: Real or Make-Belief Performance .

First, one could choose the broad market in- dex to evaluate fund performance. According to the CAPM, all fairly priced securities should have the same linear relationship between their beta and their expected return. However, different funds have different investment ob- jectives. The alpha estimate may be influenced by the nature of the objective. Indeed, some indices themselves have been shown to have an alpha, when regressed on the broad market return [Cremers, Petajisto, Zitzewitz, 2013]). Indices by definition are passive investments. If a mutual fund manager invests and pas- sively holds an index that has a positive alpha against the broad market index, he does not manifest special investment abilities. Such alpha is an artifact of the index he holds. Hence, the broad market index may be an inappropriate, even if an easy choice, when evaluating mutual fund performance.
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Can Mutual Fund Managers Pick Stocks? Evidence From Their Trades Prior to Earnings Announcements

Can Mutual Fund Managers Pick Stocks? Evidence From Their Trades Prior to Earnings Announcements

The sample is the intersection of the Spectrum Mutual Fund holdings database, Compustat, and CRSP. To be included in the sample, a mutual fund holding must have matched earnings announcement date and book value from CRSP, and a valid return, market value of equity (price times shares outstanding), past momentum (return from months t-12 through t-2), and three-day return in the earnings announcement window from CRSP. We compute terminal holdings for stocks that exit the portfolio. Where possible, we include the investment objective from the CRSP mutual fund database as determined by CDA Weisenberger or S&P. The investment objective growth includes codes G, MCG, and LTG from CDA and codes LG and AG from S&P. The investment objective growth and income includes G-I and GCI from CDA and GI and IN from S&P. The investment objective income includes I, IEQ, and IFL from CDA and IN from S&P. We classify each holding as a weight increase or weight decrease. We also record those weight increases that are first buy (from zero to positive weight), and those weight decreases that are last sells (from positive weight to zero). We measure fund size as the total market value (price times shares outstanding) of its reported equity holdings; fund turnover and fund expense ratio from the CRSP mutual fund database; and incentive fees (whether or not the fund has such a structure) from Elton, Gruber, and Blake (2003) and Lipper. Turnover is missing in CRSP in 1991.
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Discussion Paper. (Deutsche Bundesbank) No 09/2014. Market transparency and the marking precision of bond mutual fund managers

Discussion Paper. (Deutsche Bundesbank) No 09/2014. Market transparency and the marking precision of bond mutual fund managers

Dispersion is reported for all issuers as well as subsamples split into investment grade and high yield categories. Tests compare the interquartile range of bond price marks reported by mutual funds before and after CDS contract spread information for the issuer first becomes available via the Markit database. This price dispersion measure is calculated separately for all bond mutual funds, bid-marking funds, and mid-marking funds for both a pre-CDS window that includes all monthly observations within the six-month period prior to the event date and a post-CDS window that includes all monthly observations within the six months period subsequent to the event date. Panel A and B present corresponding results for a full sample and a “Pre-TRACE Era” sample. The Pre-TRACE sample includes all issuers for which the CDS introduction dates occurred before the July 1, 2002 start of TRACE trade dissemination. We aggregate any multiple observations for the same issuer by averaging their corresponding dispersion measures. N refers to the number of issuers in each sample. Statistics for the differences in dispersion between the two data windows appear in parentheses and are based on a paired t-test.
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Mutual Fund Growth in Standard and Specialist Market Segments

Mutual Fund Growth in Standard and Specialist Market Segments

There are some important implications of our results: a convex PFR leads to risk-taking incentives for fund managers [BROWN/HARLOW/STARKS (1996), KEMPF/RUENZI (2004b)]. According to option theory, these incentives positively depend on the convexity of the PFR. Therefore, risk-taking incentives for fund managers in standard segments should be stronger than in specialist segments. These stronger incentives are even reinforced by a positive influence of risk on fund growth in standard segments. Fund investors should be aware of this and closely monitor the risk-taking behavior of fund managers in standard segments. Furthermore, our results indicate, that investment companies should try to push the performance of funds in standard segments rather than in specialist segments. For example, the additional growth that can be expected from pushing an investment company’s fund up from the third to the second best performance decile is by an economically meaningful 3.66% larger in standard than in specialist segments.
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Effect of Fund Managers' Characteristics on Mutual Funds Performance and Fee in Emerging Market of Paksitan

Effect of Fund Managers' Characteristics on Mutual Funds Performance and Fee in Emerging Market of Paksitan

In earlier research work, numerous factors were identified that influence mutual funds’ return hence performance. Some academic literatures have discussed the issue of persistence of performance. Some investigate whether it is possible to find predictive characteristics explaining performance and whether fund managers as a group possess any market-timing or stock-picking skills. Evidence supports the notion that they exhibit such skills and it is observed that personal abilities and knowledge form the basis of investment decisions of fund managers 4 . These personal abilities of Fund Managers are referred as human capital and are measured with the help of age of the fund managers, experience and certification (qualification).
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An Investigation of the risk-adjusted performance of Canadian REIT mutual funds and the market timing skills of fund managers

An Investigation of the risk-adjusted performance of Canadian REIT mutual funds and the market timing skills of fund managers

On the other hand, the Treynor-Mazuy (TM) model can be considered as an extension of the Capital Asset Pricing model (CAPM), because it adds one quadratic term based on the excess market return to the usual linear index model. The model is also identified as one traditional measure that can be used to time the market. Specifically, mutual fund managers will reallocate a percentage of the market portfolio if they can appropriately predict the market trend using the market timing model, (Lee, 2010; Qiu, Faff& Benson, 2011). This implies that market timer should increase (decrease) their holdings of the market portfolio when the overall return is expected be high (low). Nevertheless, Ferruz (2010) suggests that an inverse relationship between market timing and stock-picking exists, indicating the possibility of bias in the TM model because the model cannot take into account the cost of the implicit option, as explained in what follows. For example, a negative timing coefficient in the TM model is the congruent with selling a market put option without receiving the price of the option (the option is free), the increase in return that should arise from the proceeds of the sale will instead be represented by a positive alpha coefficient which indicates the selectivity ability of fund managers, resulting in the unexpected inverse relationship between timing and selectivity skills of fund managers.
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Managers, Investors, and Crises: Mutual Fund Strategies in Emerging Markets

Managers, Investors, and Crises: Mutual Fund Strategies in Emerging Markets

The literature on non-fundamental contagion also has an empirical branch. Kaminsky and Schmukler (1999) find that spillover effects unrelated to market fundamentals are quite common, and spread quickly across countries within a region. Valdes (1998) examines the degree to which comovement of Brady-bond prices is unexplained by fundamentals. Interestingly, contagion in his paper is symmetric, applying both on the downside during crises and on the upside during periods of rapid capital inflow. A different line of empirical work on non-fundamental contagion examines whether crises are spread by particular investor groups. For example, Choe, Kho, and Stulz (1998) use transaction data in the Korean equity market to examine whether foreign investors destabilize prices. They find evidence of herding by foreign investors before Korea’s economic crisis in late 1997, but these effects disappear during the peak of the crisis, and there is no evidence of destabilization. Since their data include only transactions on the Korean Stock Exchange, these authors cannot examine the transmission of crisis across countries.
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Conditional Market Timing in the Mutual Fund Industry

Conditional Market Timing in the Mutual Fund Industry

Consistent with the motivation of the study, estimation techniques that are based on mean values of market timing can only result in blanket practical implications for fund managers. Hence, approaches based on mean values of the dependent variable like Ordinary Least Squares (OLS) and the Generalised Method of Moments (see Tchamyou et al., 2017) reflect the underlying shortcoming. Accordingly, they estimate the linear conditional mean functions and articulate the central trend of the dependent variables. Consequently, they do not take into account the distribution of the tails. Hence, a Quantile Regression (QR) approach is applied in this study to address the discussed shortcomings from estimation techniques that are based on mean values of the market timing’s distribution. In essence, the QR is employed in this study to investigate the determinants of market exposure throughout the conditional distribution of market timing (Keonker & Hallock, 2001). The QR is based on median regression and was developed by Koenker and Bassett (1978). While the OLS supposes the normal distribution between the error term and the dependent variables, the QR is not established on this hypothesis. According to Lee and Saltoglu (2001), the main advantage of the QR technique is its capacity of producing more robust estimates (Koenker & Basett, 1982). The application of QR is increasing in the finance literature, notably in: (i) analysing risk in mutual funds (Wang
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Market Timing: A Decomposition of Mutual Fund Returns

Market Timing: A Decomposition of Mutual Fund Returns

The mutual fund manager may change the fund’s market exposure for a variety of reasons. For example, there is a large literature on the predictability of market returns using publicly available information such as the aggregate dividend yield and measures of the term structure of interest rates. The manager might change his market exposure depending on this publicly available market forecast or on his own interpretation of economic variables. Further, market exposure is adjusted due to the manager’s personal expectation about future market move- ments. We specify a dynamic model for beta to allow for the possibility that fund managers slowly adjust their exposure (e.g. to reduce transactions costs) or have a long-run target beta from which they do no want to deviate too much. Finally, betas may ‡uctuate randomly, not related to any of the previous components. The skill of the manager can be divided in a selectivity and timing component. If the manager possesses timing ability, the expected conditional return of the mutual fund is larger in periods when the conditional volatility
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An Analysis of Performance Evaluation of Mutual Funds Based on Fund Nature: A Case of Mutual Fund Market of Pakistan

An Analysis of Performance Evaluation of Mutual Funds Based on Fund Nature: A Case of Mutual Fund Market of Pakistan

Hayat and Kraeussl (2011) took a sample of 145 Islamic equity funds from Asia over a period 2000 to 2009 in order to examine the risk and return characteristics of these Islamic equity funds. The portfolio holdings would be halal if they follow three financial criteria which state that total debt over 12-month average capitalization, cash plus interest bearing securities over 12 month average market capitalization and accounts receivables over 12 month average market capitalization should be less than 33%. The performance of Islamic equity funds was evaluated against the conventional and Islamic benchmarks. CAPM was used to measure risk and return characteristics and performance of mutual funds while they used Treynor and Mazuy (1966) model and market timing testing procedure proposed by Jiang (2003) in order to measure and test timing ability of fund managers. The purpose of this study was to analyze the performance of Islamic mutual funds. They found that Islamic equity funds underperformed in comparison to those of Islamic and conventional mutual fund benchmarks. Islamic equity funds composed of local stocks performed better than those composed of international stocks did. It was also found that Islamic equity funds were poor market timers and they had some specific risks that were not present in conventional investments, which were Sharia laws, lack of track record, low working capital companies and sub- optimally leveraged companies, but Islamic equity funds did not have any downside risk. It was concluded that Islamic index trackers and Islamic exchange traded funds were a better investment option than Islamic equity funds.
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Market timing: A decomposition of mutual fund returns

Market timing: A decomposition of mutual fund returns

The mutual fund manager may change the fund’s market exposure for a variety of reasons. For example, there is a large literature on the predictability of market returns using publicly available information such as the aggregate dividend yield and measures of the term structure of interest rates. The manager might change his market exposure depending on this publicly available market forecast or on his own interpretation of economic variables. Further, market exposure is adjusted due to the manager’s personal expectation about future market move- ments. We specify a dynamic model for beta to allow for the possibility that fund managers slowly adjust their exposure (e.g. to reduce transactions costs) or have a long-run target beta from which they do no want to deviate too much. Finally, betas may ‡uctuate randomly, not related to any of the previous components. The skill of the manager can be divided in a selectivity and timing component. If the manager possesses timing ability, the expected conditional return of the mutual fund is larger in periods when the conditional volatility
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WAEMU (West Africa) Mutual fund performance: An empirical decomposition into stock picking and market timing of managers

WAEMU (West Africa) Mutual fund performance: An empirical decomposition into stock picking and market timing of managers

Les résultats consignés plus haut, dans la première ligne du tableau 4 appellent plusieurs observations. Premièrement, nous remarquons que trois fonds ont des lambda positifs et significatifs à 1%, 5% et 10%. Ensuite, quatre fonds présentent des lambda positifs, mais non significatifs. Seul, un seul fonds possède un lambda négatif. Certes nos résultats ne permettent pas de conclure, mais comme les coefficients sont positifs, ils montreraient (s'ils étaient tous significatifs) que les gérants des fonds de l'UEMOA arrivent à anticiper les mouvements du marché régional. Ce résultat est conforme à celui de [15], qui trouvent que 55% des gérants exhibent une capacité de market timing avec des données hebdomadaires. Ce pourcentage se réduit considérablement pour s'étendre à 4% lorsqu'ils utilisent une période d’étude plus long (le mois). Quant à [25], ils trouvent une incapacité des gérants de fonds de l'Afrique du sud à ajuster la composition de leurs portefeuilles en vue d'obtenir des rendements supérieurs pour les investisseurs.
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Emerging Market Mutual Fund Performance: Evidence for Poland.

Emerging Market Mutual Fund Performance: Evidence for Poland.

This paper provides evidence on the performance of mutual funds in a prominent emerging market; Poland. Studying an emerging market provides an excellent opportunity to test whether the consensus on the inability of mutual funds in developed and highly efficient markets to beat the market, also holds in less efficient markets. While the weaknesses of legal institutions and underdeveloped capital markets in emerging countries could negatively contribute to performance, a certain level of market inefficiency might also enable fund managers to successfully apply security selection and therefore beat the market. This paper presents an overview of the Polish mutual fund industry and investigates mutual fund performance using a survivorship bias controlled sample of 140 funds. The latter is done using the Carhart (1997) 4-factor asset-pricing model. In addition, we investigate whether Polish fund managers exhibit “hot hands”, persistence in performance. Finally the influence of fund characteristics on risk-adjusted performance is considered. Our overall results suggest that Polish mutual funds on average are not able to add value, as indicated by their negative net alphas. Interestingly, domestic funds outperform internationally investing funds, which points at informational advantages of local over foreign investors. Finally, we detect strong persistence in mean returns up to 1 year. It is striking that “winning” funds are able to significantly beat the market, based on their significantly positive alpha’s. These results deviate from studies on developed markets that conclude that even past winners are not able to significantly beat the market.
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