Characteristic Factors and Fund Evaluation in Korea

Abstract

Factors that govern common variation of equity returns in Korea are identified and whether they are priced is examined. Size and equity book value-price ratio turn out to be the determinants of common variation and they also appear to be priced. Momentum factor shows mixed results depending on the samples, while macroeconomic factors consistently fail to group stocks into any meaningful manner. The factors are utilized to assess the performance of the retail equity funds. Characteristic-based performance analysis reveals that high risk-adjusted excess returns are accompanied by high selection and timing abilities of fund managers. Risk-adjusted returns are more persistent compared to unadjusted returns.