Investment Performance Measurement Research Articles

Evaluating the Impact of Inflation and Exchange Rates on the Net Active Value (NAV) of Conventional Mutual Funds in Indonesia

The growing development in the financial industry and the current high inflation rate are a great worry for investment prospects, especially mutual funds. Conventional mutual funds in Indonesia have experienced significant growth in the capital market. In the last 10 years, the number of domestic mutual funds has continued to increase. One measure of investment performance in mutual funds is proxied by the Net Asset Value (NAV) of mutual funds. Therefore, the objective of this study is to evaluate the influence of macroeconomics variables on the NAV of conventional mutual funds in Indonesia. In this study, using commercial bank data in Indonesia, we estimate an empirical model of the effect of inflation and exchange rates on the NAV of conventional mutual funds in Indonesia during the period 2012–2022. We employ a time series model using the Ordinary Least Square (OLS). The main findings show that while inflation has no effect on the NAV of conventional mutual funds, the exchange rate has a significant effect on it because there are many instruments in conventional mutual funds that have invested abroad due to changes in exchange rates that appear with dominant results that do not affect the growth of the NAV of conventional mutual funds. Keywords: macroeconomics, net active value (NAV), mutual funds

Does the investment performance measure matter? A perspective from regulatory focus theory

An experimental study with a sample (N = 213, 49.8% male, 18-year-old or above) indicates that investment performance measures based on drawdown duration can capture investors’ preference when other investment measures focusing on risk-adjusted returns such as the Sharpe ratio fail to. Based on the result, the prevention-focused investors are found to be more sensitive to, and easily affected by the number of drawdown days than the promotion-focused investors. Performance measures based on drawdown duration can supplement traditional performance measures to capture investors’ preference.

Assessment of Residential Real Estate Investment Performance in Lafia Metropolis, Nigeria

Investors are expected to be guided through investment performance measurement and analysis in order to safeguard against potential loss of investment returns or the capital invested. Whereas residential real estate (RRE) constitutes a significant part of the portfolios of individual and institutional investors across the globe, the assessment of risk-return performance of RRE investment in Nigeria generally has not been well researched. Investors in real estate (RE) in the Lafia city of Nasarawa State, like other cities in Nigeria, still rely on mere intuition, sales comparison and the rule of thumb in real estate investment decisions-making. Consequently, these ill-informed investors often venture into poorly conceived and subsequently financially disastrous real estate investment projects thereby failing to achieve their desired investment objectives. Hence, this research was conducted to evaluate the performances of RRE investment in Lafia metropolis of north-central Nigeria with a view to guiding existing and potential real estate investors and practitioners in the region in making informed property investment decision. A survey research design was adopted to collect transacted residential property value data from estate surveying and valuation firms as well as reputable estate agent offices in the study area. Mean scores, property value index and holding period return model were used to analyse the rental/capital value indices and total return performance respectively. The modified value-at-risk model was used to assess risk while the modified Sharpe ratio was used to evaluate the risk-return performance of RRE investment performance in the study area. The research findings revealed, among others, a progressive increase in rental and capital values of RRE within the study period. RRE investment showed an average rental growth of 6.8% per annum and capital value growth of 9.4% per annum. On the basis of investment returns, it was found that Angwan Doka outperformed other selected neighbourhoods in the study area with an average mean total return and risk-adjusted return of 13.76% and 0.80% per annum respectively while Shabu underperformed other locations with average mean total return and risk-adjusted return of 12.17% and 0.55% per annum. The study recommended, among others, that potential real estate investors should consider investing in residential real estate in Angwan Doka since this location gives higher total and risk-adjusted returns on residential property investment relative to other locations in the city.

A composite trend representation-based tracking system with historical portfolio data for portfolio optimization

In this paper, we propose a novel tracking system based on composite trend representation and historical portfolio data (CTRHP) for portfolio optimization (PO). In the part of obtaining prediction of price, we introduce the important data of historical portfolio, which is rarely utilized before, to improve the accuracy of measuring investment performance. In addition, we propose a set of correlation coefficient-based similarity measurement functions (CSMFs) to automatically assign different weights to different trend representations, which enables each trend representation to have an impact on future price predictions and set the strength according to their investment performance. In the part of portfolio optimization, a new optimization objective based on generalized increasing factors is proposed to optimize the investment portfolio, and a fast solution algorithm is presented. Extensive experiments on six standard datasets from real financial markets across different assets and different time horizons show that our CTRHP achieves significantly better performance compared with previous state-of-the-art PO systems in investing returns and risk control. Moreover, it has the advantages of being able to tolerate certain transaction fees and running fast, which shows that it is suitable for real financial environments.

Portfolio analysis with Sharpe ratios resampled with bootstrapping

<p><big>In this paper, a portfolio analysis is carried out using the Sharpe ratio to identify the optimal market portfolio. The measure of investment performance with a Sharpe ratio is compared to results obtained with bootstrapped resamples of the Sharpe ratio. The results indicate that the choice of the market portfolio is highly affected by the uncertainty regarding the estimation of the expected returns and the variance-covariance matrix between the returns, that is, the estimation risk associated with these parameters.</big></p>

Real Estate Investment Performance Measurement in Nigeria: Problems and Constraints Facing Professionals in a Highly Active but Opaque Market

Real estate investment plays a vital role in the economic system and the measurement of its performance provides a basis for the analysis of the state of the market and investment decision making at any point in time either at the property level, portfolio level or the property sector level. As a key indicator in the ranking of property markets across the world, real estate investment performance measurement has become an important index in the market maturity framework. However, the Nigerian real estate investment market has continued to be constrained by the absence of recognized performance measurement framework due to several factors. This study, which is part of an extended research, examines the problems and constraints that have militated against the construction of a performance measurement indices for the Nigerian market. The study carries out a questionnaire survey on a sample of 276 Estate Surveying and Valuation firms spread across the Nigerian real estate market. The data collected was analysed using the mean score to rank 21 identified factors that have limited the measurability of the market performance comparative to other globally recognized indices in other real estate markets. Out of the 21 limiting factors, 14 factors were specifically identified as having high impact levels on investment performance measurement of real estate in Nigeria. Among the 14 factors include absence of data unit that tracks market performance by the firms, inadequate information about the real estate market, lack of uniform performance measurement benchmark in the industry, limited knowledge of the performance measures by practitioners and the other factors. The study recommends urgent intervention by the Nigerian real estate professional body and its regulator in partnership with investors by creating an online based real estate specific information and data centre to address the identified problems in order to increase the measurability and transparency of the market.

THE INTERMEDIATION ROLE OF RISK BIAS BETWEEN OVERCONFIDENCE AND INVESTMENT PERFORMANCE: A RESEARCH IN BORSA ISTANBUL

Geleneksel finans teorileri yatırımcıların rasyonel olduğu ve olası alternatiflerden kendisine en yüksek faydayı sağlayacak olanı seçtiği varsayımına dayanmaktadır. Bununla birlikte davranışsal finans, yatırımcıların tamamen rasyonel olmadığını ve karar verme süreçlerinin çeşitli davranışsal faktörlerden etkilendiğini ifade etmektedir. Bu doğrultuda çalışmanın amacı, Borsa İstanbul (BIST)’da işlem yapan bireysel yatırımcıların aşırı güven eğilimleri ile yatırım performansı arasındaki ilişkide risk eğiliminin aracılık rolünü incelemektir. Veri toplama aracı olarak anket yöntemi seçilmiş ve elde edilen veriler Lineer Regresyon modeli ile analiz edilmiştir. Çalışmanın sonucunda aşırı güven eğiliminin yatırım performansı üzerinde, aşırı güven eğiliminin risk eğilimi üzerinde ve risk eğiliminin yatırım performansı üzerinde pozitif yönlü anlamlı ilişkiler tespit edilmiştir. Aynı zamanda aşırı güven eğilimi ile yatırım performansı arasındaki ilişkide risk eğiliminin kısmi aracılık etkisinin varlığı da kanıtlanmıştır. Bu sonuca göre çalışmanın, bireysel yatırımcıların davranışsal önyargılar konusundaki farkındalığının artmasına ve böylece daha iyi yatırım kararları almalarına katkı sağlayacağı söylenebilir.

Practical Applications of Option-Enhanced Tax-Smart Portfolio Value

Since the origination of the investment discipline, tax implications have always been secondary to investment decisions. Investment education resources and those for training investment professionals do not emphasize after-tax performance. Another idea favored by the investment community is that when investing, a more accurate measure of performance is not how much one makes but how much one keeps. These two ideas conflict since potential tax obligations from selling securities can significantly impact the actual value of investments. In <b><i>Option-Enhanced Tax-Smart Portfolio Value</i></b>, from the April 2022 issue of <b><i>The Journal of Portfolio Management</i></b> and other articles about the impact of taxes on investments, author <b>Andrew Kalotay</b> of <b>Kalotay Advisors</b> contends that there must be a change in how taxable securities are valued and how the performance of taxable investment portfolios is derived. “To discuss how you can improve after-tax performance intelligently, you must develop a way to measure it,” says Kalotay. This philosophical change in investment valuation would facilitate tax-loss harvesting decisions, enhance investment performance measurement, and provide a better way to compare the performance of fund managers and advisers. Kalotay believes that “there should be much more attention by academics and practitioners on the critical topic of after-tax performance.”

Practical Applications of Factor Model Index for Commodity Investment

Institutional investors, especially pension funds, often obtain commodity exposures by investing in commodity futures. But while investment in any asset class requires appropriate benchmarks for performance measurement and return attribution, the proper criteria for investment strategies based on commodity futures are just beginning to emerge. In <b><i>Factor Model Index for Commodity Investment</i></b>, from the Winter 2021 issue of <b><i>The Journal of Index Investing</i></b>, authors <b>Daniel Broby</b> of <b>Ulster University</b>, <b>Andrew McKenzie</b> of the <b>University of Arkansas</b>, and <b>Olivier Bauthéac</b> of <b>Strathclyde Business School</b> propose an approach for constructing a factor model index for commodities that is replicable and investable. They contend that factor model indexes (FMIs) can be substituted for existing production-based indexes that utilize futures contracts. The technique allows commodity investors to construct an optimal portfolio and measure investment performance more accurately.

Assessment Of Investment Strategy With A Utility-Based Approach

The purpose of this study is to analyze the assessment of investment strategies with a utility-based approach. The rise of investment at this time has the aim of increasing welfare in the present and in the future. Investing is expected to have the best investment strategy and be supported by investment knowledge. Investment strategy requires consideration of economic factors, business intuition, experience. Approaching retirement age, investments are made more determined by psychological factors, therefore, it is necessary to manage the financial portfolio of retirement income with the right strategy. How to manage investments in a retirement portfolio. People who have entered retirement age always want to get the maximum utility from the pension money they have earned so far. When money has been invested in certain assets, under which conditions are formed: (1) the safest investment withdrawal rate (2) can be used in the possibility of running out of money which is considered to have failed to plan as the main measure of investment performance in a pension fund portfolio.

Effect of Drawdown Strategy on Risk and Return in Nigerian Stock Market

The study examined effect of drawdown on return in the Nigerian stock market. The study covered the period of 2005 to 2020. Purposive sampling was employed and the sample size comprising 90 regularly traded stocks were used for the analysis. Monthly data sourced from the CBN statistical bulletin and Nigeria Stock Exchange on stock prices, market index, risk-free rate ownership shareholdings, market capitalization, book value of equity, earnings before interest and taxes, total assets and drawdown were used for study. The Fama-MacBeth two-step regression method was employed. The study found that the drawdown has a negative and significant effect on stock returns but has a positive and significant effect on risk in the Nigerian stock market over the whole sample period. Findings also revealed that the sub-period are not stable in terms of the magnitude of effect and significance on risk and return. Our findings contradict the a-priori expectation that drawdown could improve performance through risk minimization and return maximization in the Nigerian stock market. Based on the findings investors and other market participant are encouraged to use drawdown as one of the investment performance measures to guide investors’ expectation and their tolerance on the size of stock market disruption or crashes or rallies in Nigeria.

Impact of agricultural sector investment development on national economic output

This study aims to capture the investment performance of the agricultural sector in capital formation and the incremental capital output ratio (ICOR) and its relative contribution to the national economy in the 2011-2020 period. ICOR research method is the ratio of changes in output due to changes in capital as an indicator to measure investment performance. The research data used is secondary data obtained from the Central Statistics Agency (BPS). The results of the study show that the investment performance of the food crop agricultural sector has fluctuated throughout 2011-2020. The impact of the policy on the agricultural sector was generally positive, but in that vulnerable year, investment leakage was found that led to efficiency. The cause of the leakage is the behaviour of rent-seeking which is reflected in the time leading up to the elections, namely in 2014 and 2018 with the leakage rate of the investment budget in that year being very high, namely 74.09% and 84.50%, respectively. The year 2012 was marked by an ICOR value close to 0 (zero) accompanied by the growth and performance of the agri-food sector of 12.80%. In 2013 and 2015 the performance of the food crop sector contributed to the economic growth of the food crop sector by 8.65% and 15.78%. Unfortunately, the potential for loss of income in that year was very high, namely Rp. 8.16 trillion and Rp. 17.45 trillion, respectively. The best period for the performance of the food crop agricultural sector occurred in the rent-seeking behaviour that occurred in 2 motives, namely political and economic motives. Political motives occur through the mechanism of the backing system and lobbying. The economic motive is caused by the emergence of transaction costs for the distribution of subsidized fertilizers so that it leads to an increase in the HET for subsidized fertilizers.

Exploring innovative energy infrastructure financing in Ghana: benefits, challenges and strategies

PurposeInefficiencies in the power sector resulting from underinvesting and underselling reduce the ability of governments to adequately finance energy projects. The purpose of this paper is to explore mechanisms of energy financing, benefits and challenges associated with innovative financing of energy infrastructure as well as strategies to improve innovative financing of energy infrastructure.Design/methodology/approachQuestionnaires were used to elicit responses from respondents. Seventy-eight responses were retrieved. Mean score ranking, Kruskal–Wallis test and discriminant validity were the analysis conducted.FindingsPartial credit guarantee; partial risk guarantee; credit enhancement; and loan guarantees were the significant mechanisms. Production efficiency; reduce pressure on public budgets; access to management expertise; and self-sustainability of infrastructure facilities were the significant benefits. Lack of transparency and adequate data for risk assessment; high up-front cost; heterogeneity, complexity, and presence of a large number of parties; and lack of a clear benchmark for measuring investment performance were the severest challenges. Complete transparency and accountability; political stability and public view on private provision of energy infrastructure services; and macroeconomic environment were the significant strategies.Practical implicationsThis study is beneficial to energy sector as the current government of Ghana hints on willingness to involve private sector in management of the power sector.Originality/valueThe novelty of this study is that it is a pioneering study in Ghana on innovative financing of energy infrastructure.

An Investment Theory Based on Geometric Return

Return is the most fundamental concept in investment. There are two methods to measure returns: Arithmetic return and geometric return. The standard investment theory, Markowitz portfolio theory and CAPM, uses arithmetic return. Geometric return provides more accurate and precise measurement of investment performance. Because of this, geometric return provides many advantages as the foundation of an investment theory.

Performance Measurement in the Life Insurance Industry: An Asset-Liability Perspective

Established risk-adjusted investment performance measures such as the Sharpe Ratio, the Sortino Ratio, or the Calmar Ratio have been developed with an exclusive focus on the mutual and hedge fund industries. Consequently, they are less suited for liability-driven investors such as life insurance companies, whose portfolio choice is materially affected by the substantial interest rate sensitivity of their long-term contractual obligations. In order to tackle this limitation, we propose an Asset-Liability Sharpe Ratio, which is theoretically motivated, easy to estimate, incentive compatible, and conveys information that is not included in existing measures. <b>TOPICS:</b>Risk management, performance measurement <b>Key Findings</b> • Established risk-adjusted investment performance measures such as the Sharpe Ratio, the Sortino Ratio, or the Calmar Ratio have been developed with an exclusive focus on the mutual and hedge fund industries. • Consequently, they are less suited for liability-driven investors such as life insurance companies, whose portfolio choice is materially affected by the substantial interest rate sensitivity of their long-term contractual obligations. • In order to tackle this limitation, we propose an Asset-Liability Sharpe Ratio, which is theoretically motivated, easy to estimate, incentive compatible, and conveys information that is not included in existing measures.

Rehabilitation of the Internal Rate of Return

The Internal Rate of Return (IRR) is a widely used investment performance measure. However, due to well-known pitfalls and wrong assumptions rather attributed than inherent in the IRR technique some experts on capital budgeting recommend either using the IRR rule very carefully or avoiding it entirely. The paper discusses the most significant pitfalls concerning the IRR in some cases appear to be common misconceptions, while the actual pitfalls are related to the NPV rather than the IRR. The paper affirms that: (i) if a project is conventional, the IRR being the NPV function root, is a rate of return or an interest rate and much better than any other modified IRR; (ii) irrelevant IRRs are due to an imperfection of the NPV method that should not be used for evaluating nonconventional projects; (iii) if a project is nonconventional the GNPV method should be used that is an extension of the NPV method from one to two different discount rates for investment and loan; (iv) the GIRR and GERR are rate of return and rate of cost for nonconventional project.

Analysis of The Effect of Macroeconomics On Net Assets Value (NAV) of Sharia Mutual Funds In Indonesia

Net Asset Value (NAV) is a measure of investment performance for sharia mutual funds derived from the entire value of the mutual fund portfolio fewer liabilities. This research aims to analyze the effect of the rupiah exchange rate, inflation, Jakarta Islamic Index (JII) and Bank Indonesia Sharia Certificate (SBIS) on Net Asset Value (NAV) of Sharia Mutual Funds. The object in this research consisted of 5 companies registered with the Financial Services Authority (OJK) from 2012-2019. Panel data regression analysis was used to test the hypothesis in this study. A random effect is used to determine the differences in the effect. The result of this study concluded that rupiah exchange rate, inflation and JII and SBIS effect on NAV of sharia mutual funds simultaneously. Partially, an unstable rupiah exchange rate is considered to have an impact on the company's production factors and affect the validity of the stock price; This causes investments no longer be attractive to investors, thereby reducing the value of investments that have an impact on the declining mutual fund NAV. Inflation decreases the real income of people with fixed income will also reduce the value of wealth in the form of money so that people will prefer to invest their money in the form of real assets that will result in reduced investment in the financial and capital markets and lower the NAV value of Islamic Mutual Funds. JII describes the performance of stocks which are one of the portfolios of sharia mutual funds. If the JII index value rises, then the increase in the portfolio of sharia mutual funds that share type will also rise which will have an impact on the increase in the nett asset value of sharia mutual funds. SBIS does not affect the Sharia Mutual Funds NAV. The relationship between SBIS and the Sharia Mutual Fund NAV as well as the relationship between interest rates and stock prices is negative or in the opposite direction. If interest rates rise at an adequate level, investors will try to move their investments from stocks to deposits.

Mutual Fund Performance at Long Horizons

Measures of investment performance, including alpha, the canonical measure of mean return after allowing for systematic (beta) risk, depend on return measurement horizon, because beta depends on horizon. We introduce a procedure that relies on a combination of theory and simulations to estimate long-return-horizon alphas and betas from short-horizon estimates. Compared to a benchmark of 41% estimated in monthly returns, the percentage of mutual funds with positive alpha estimates against the SPY decreases to 21% (increases to 46%) at the decade return horizon for funds with high (low) estimated monthly market betas. Alphas estimated from short-horizon (e.g. monthly) returns may be uninformative or even misleading regarding fund performance for investors with longer horizons.

Investor personality and investment performance: from the perspective of psychological traits

PurposeThe purpose of this study is to analyse the mediation effect of psychological biases, namely, financial risk tolerance (FRT) and financial overconfidence on the relationship between personality traits of individual investors and their investment performance (perceived) in the context of a developing financial market such as Indian Capital Markets.Design/methodology/approachThe study uses both quantitative and cross-sectional approach to collect response from 983 individual investors through a questionnaire. The questionnaire had segments that were designed to assess their personality traits, investment performance and psychological traits. The personality traits were assessed through Big-Five personality inventory (TIPI), the psychological traits, i.e. FRT was measured through FRT scale, whereas financial overconfidence was measured through three basic concepts, namely, over-precision, over-placement and overestimation. Investment performance was assessed through perceived investment performance measures. The collected data was then analysed through AMOS and SPSS to validate the hypothesised relationship.FindingsFindings of the study depict that personality traits of individual investors are related with their FRT, financial overconfidence and perceived investment performance. In addition, FRT and financial overconfidence are negatively related to perceived investment performance. Furthermore, mediation analysis showed that the two psychological traits were found to fully mediate the relationship between personality traits and investment performance.Research limitations/implicationsThere are still certain limitations of the present study. First, the questionnaire pre-testing and sampling technique allowed for only for those investors who had an experience of investment in financial markets; however, the quantification of actual investment performance for each investor was impossible, and thus the actual investment performance was not determined. Second, this study focusses on the mediating role of financial overconfidence and financial risk-taking, as such it is known that levels of financial overconfidence and risk-taking depend on many other extraneous factors such as socio-economic status and financial knowledge.Practical implicationsThe findings of the present study is useful for financial companies, policymakers as well as issuers of financial securities, who can keep a watch on these behaviour-related traits before issuing a security in the financial market and for the financial service providers; this study would be beneficial to design a “behavioural portfolio” according to the personality and psychological traits of their clients.Social implicationsThrough this study, the investors can recognise their personality traits and psychological biases and take sound and good investment decisions and can also maximise their level of overconfidence. This increased level of overconfidence will propel them further to actively and frequently participate in financial markets and make financial gains.Originality/valueThe essence of this paper lies in the identification of personality traits and psychological traits of individual investors, and their relationship with investment performance. Studies such as this are less prevalent in the context of a developing country such as India. Moreover, to the best of the authors’ knowledge, this paper is first of its kind to study the meditating effect of psychological biases in the relationship between personality traits and investment performance.

Investment performance measurement of new generation mobile communication networks based on dynamic DEA model

With the fast development of the mobile internet in recent years, the new generation mobile communication networks as the basic supporting have received widespread attentions. During the upgrading period of new generation networks, the telecom operators need to grasp the network investment performance, which is one of the key factors for deploying the new generation networks and arranging new services effectively. In this paper, first, we propose a method based on the dynamic DEA model and the sensitivity analysis to measure the network investment performance of telecom operators, which gives the managers and researchers insight into the changing process of the key influence factors on the investment performance. Then, we build the input-output indicators system of the DEA model from five dimensions, such as INVESTMENT, SUPPLY, ADOPTION, USAGE, and REVENUE, for a more complete and valid characterization to the network investment performance. At last, we apply the proposed method to conduct an empirical research on the operational data of one Chinese telecom operator from 2013 to 2015, which has been the initial launch phase of 4G network. Based on the result, we develop effective investment strategies for the upgrading period of networks, which also gives guidelines for the investment of 5G and other new generation networks in the future.