Abstract
We investigate the performance and time varying risk behaviour of Hungarian equity mutual funds by applying modified versions of the four-factor model applying different market proxies. We classify the funds according to their target markets (Hungary, Central and Eastern Europe [CEE], developed markets) and separate bullish and bearish periods. We find no significant excess returns for any circumstances; however, market betas are significantly different for bullish and bearish periods as well as the explanatory power of book-to-market ratio and market capitalisation. After taking into account the daily percentage changes in the number of shares outstanding we find investors’ relation to risk to be different in bearish and bullish periods.
Highlights
The performance of mutual funds has attracted much attention in recent decades
According to our estimates a one-factor model using the CETOP20 regional index has better explanatory power than a model using the Center for Research in Security Prices (CRSP) market proxy (Mkt) for the Hungarian and Central and Eastern European (CEE) funds but for the funds investing in developed markets as well, which seems to be surprising in a globalised capital market; verify the hypothesis of Errunza and Losq (1985)
Notes: This table shows the results of the modified Carhart (1997) four-factor model for bearish periods, using CETOP20 as a market proxy extended with daily percentage changes in the number of shares outstanding. *, **, *** denote significance levels of 10%, 5% and 1% respectively
Summary
The performance of mutual funds has attracted much attention in recent decades. there is a lack of scholarly investigation of mutual funds’ performance from post-communist Central and Eastern European (CEE) countries. Ferreira, Keswani, Miguel, and Ramos (2013) find that in the 27 investigated countries equity funds underperform the market over the period 1997–2007 They detect a positive relation between mutual fund performance and level of financial market development and liquidity in the country. Banegas, Gillen, Timmermann, and Wermers (2013) measure significant excess returns for the investigated mutual funds investing in European (both country specific and pan-European) over the period 1988–2008 Their results suggest that there are fund managers with superior country-specific skills, their performance depend on the state of the economy.
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