Abstract
The study examines if specific characteristics of funds influence the performance of Saudi equity mutual funds. Previous research has explored various aspects of mutual funds. However, the Saudi Arabia literature focuses on evaluating the funds’ performance. Hence, this study seeks to close this gap by providing a framework to explain the equity fund performance. Several risks adjusted performance measures are applied such as Jensen’s alpha, lower partial moment alpha, Sharpe ratio, LPM-Sharpe ratio using the dynamic panel specification over the period 2010–2019. Based on the LPM alpha, the risk-adjusted return analysis reveals that the Saudi equity funds outperformed their benchmark over the full sample period. The empirical results show that major fund-specific characteristics such as fund size, past performance, and flow explain future performance. Besides, the evidence confirms that Saudi funds benefit from the economies of scale and expertise, while funds requiring higher levels of initial investment tend to exhibit lower performance levels. These findings provide investors and fund managers with useful information to make the optimal investment decisions in the mutual fund industry.
Highlights
For a long time, the collective management industry has played a significant role in the global financial markets, and investor demand for regulated and professionally managed funds has skyrocketed in recent years
The findings indicate that all subsamples of KSA domestic funds did not generate superior relative performance using the CAPM-measures. quired; SBANKit (Sponsored bank dummy) is an
It is noteworthy that a different result is observed when LPM-S Alpha t-Student Alpha (LPM) alpha and LPM-Sharpe ratios The study focuses on testing the effect of selectare chosen, which indicates a significant out- ed fund-specific characteristics on future perforperformance for the growth and total samples. mance
Summary
The collective management industry has played a significant role in the global financial markets, and investor demand for regulated and professionally managed funds has skyrocketed in recent years. The relevance of the study is demonstrated by mutual funds’ substantial role, as well as insufficient financial literacy, especially among ordinary retail investors The latter are still seen as oriented or misdirected by the widespread belief that a higher expense ratio will always result in greater outcomes. They can be led by the enormous fund size and higher returns without considering the fund’s risk In this respect, this study helps to clarify and inform potential investors about investment opportunities in Saudi funds, as it discusses the main factors that allow predicting fund performance using various risk-adjusted measures. Previous studies have emphasized the relation- to the literature by providing useful information for ship between funds’ specific characteristics and domestic and foreign investors, fund managers and their performance such as fund size Wongsurawat, 2012; Baghdadabad, 2015; Khan et al, 2016; Milena et al, 2017)
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