Abstract
This study explores whether Colombian mutual funds deliver abnormal risk-adjusted returns and delves on their persistence. Through traditional and downside risk measures based on Modern Portfolio Theory and Lower Partial Moments, this article evaluates the performance of 146 mutual funds categorized by investment type and fund manager. This assessment suggests that mutual funds underperform the market and deliver real returns. Similarly, bond funds underperform equity funds, and investment trusts underperform brokerage firms as managers. Furthermore, bond funds and funds managed by investment trusts exhibit short-term performance persistence. These results suggest that investors may pursue passive investment strategies, and that they must analyze past performance to invest in the short-term.
Highlights
Over 1.5 million individuals invested in Colombian mutual funds, FICs, in 2016. e net worth managed in mutual funds accounted roughly for 7.7% of the national Gross Domestic Product
To evaluate fund performance is critical to any investor that allocates part of her assets into mutual funds. is assessment allows to compare risk-adjusted returns across funds and relative to a benchmark
Our results suggest that mutual funds destroy value to investors, an investor is better off when investing in passive strategies
Summary
Over 1.5 million individuals invested in Colombian mutual funds, FICs (acronym in Spanish: Fondo de Inversión Colectiva), in 2016. e net worth managed in mutual funds accounted roughly for 7.7% of the national Gross Domestic Product. Investors are indifferent to execute active or passive investment strategies Such is the case of Dubova (2005), who nds no conclusive results neither on the dominance of the market portfolio nor on any optimized portfolio based on risk-adjusted returns, once she compares the performance of ve optimized portfolios through the Capital Asset Pricing Model –CAPM–, and the index from 1993 to 2003. Other studies test the EMH by evaluating the performance of managed portfolios through an asset pricing model Such method allows for the direct assessment of mutual funds risk-adjusted returns in relation to the market, and whether these funds add value to investors. Is perspective to analyzing mutual funds highlights the potential of implementing a set of riskadjusted measures to evaluate the relative performance among funds and a benchmark It allows to assess whether an investor may pursue active or passive investment strategies.
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