Abstract
ABSTRACT The purpose of this paper was to analyze the relationships between the portfolio turnover and performance of equity investment funds in Brazil. There are few published studies on the subject, but the previously identified Brazilian studies that have examined making changes to portfolios have been limited to very restricted data samples and have only worked with an ordinary least squares (OLS) model without taking into account the indications of international studies and economic theory itself of the possible endogeneity of turnover, which would make OLS estimation inadequate. The expressive growth of the fund industry in the Brazilian market shows the relevance of the object of research. Two portfolio turnover metrics were analyzed: one based on changes in the monetary values of the assets and another based on changing the weights of the assets in the portfolio. The estimations were performed for fixed effects panel data and then for a two-stage least squares model, using instrumental variables. The funds that make up the sample are those classified as “free shares” in the period from January of 2012 to January of 2018. The results showed that there is a positive relationship between the portfolio turnover and performance of the equity investment funds, showing that managers have been able to take advantage of moments of mispricing in the market and that they carry out more trades in search of higher returns. This research extends the results in the literature as it shows that there is a positive relationship between the turnover and performance of equity investment funds that is independent of the way turnover or performance are measured, which has shown inconclusive results in previous studies. Furthermore, it presents evidence for a more representative and current sample in an emerging market.
Highlights
Sabrina Espinele da Silva, Carolina Magda da Silva Roma & Robert Aldo IquiapazaInvestment funds represent a collective investment modality, one of whose advantages is specialized management
We look at equity investment funds, whose main risk factor is variations in the price of the stocks that compose their portfolios, as well as the obligation to invest at least 67% of their net equity in shares traded on the stock exchange (CVM, 2014)
This study aims to fill the gap observed in the literature on investment funds in the domestic market, since there are many studies in the literature that discuss the performance of equity investment funds, related or not with characteristics such as size, age, administration fees, and others (Carhart, 1997; Chen, Hong, Huang & Kubik, 2004; Mansor, Bhatti & Ariff, 2015; Paz, Iquiapaza & Bressan, 2017; Vidal et al, 2015), few papers analyze variations in the portfolio composition of these funds and their impacts on performance
Summary
Sabrina Espinele da Silva, Carolina Magda da Silva Roma & Robert Aldo IquiapazaInvestment funds represent a collective investment modality, one of whose advantages is specialized management. The equities that will compose their portfolios and their suitable rebalancing should be decided by a professional specialized in this task: the fund manager It is the manager’s responsibility to allocate assets in the fund’s portfolio such that it can achieve good performance. Performance is one of the critical aspects taken into account by investors when choosing a fund to invest in (Ferreira, Keswani, Miguel & Ramos, 2013). This stage is relevant and can be considered as a feedback and control procedure that is able to make the process more effective. The aim is to make periodic comparisons of the risk and return incurred by a manager in an active management strategy with a benchmark (Oliveira & Sousa, 2015)
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