Jensen's Alpha Research Articles

Analyzing the Ability of Investment Managers in Equity Mutual Funds during the Covid-19 Pandemic in Indonesia

Mutual fund is one of the investment instruments widely used as an investment option. There are two essential things to be considered by the Investment Manager as a mutual fund manager: the stock selection and the market timing ability. The Covid-19 pandemic has caused many investors to experience potential investment losses. Understanding stock selection and market timing will be needed for determining which Investment Managers perform well in managing equity mutual fund, especially while dealing with the Covid-19 pandemic. The objective of this study is to analyze the ability of Investment Managers to perform stock selection and market timing, the performance of equity mutual fund, and the effect of stock selection and market timing ability on the performance of equity mutual fund in Indonesia. This study applies the Fama net selectivity methods to assess stock selection ability and Treynor-Mazuy and Henriksson-Merton models to analyze market timing ability. Sharpe, Treynor, and Jensen's alpha methods are also used for measuring mutual fund performance. The data is processed per mutual fund to recognize each mutual fund's stock selection and market timing ability. Furthermore, the research spans two time periods: before and following the Covid-19 pandemic. A dataset of 104 equity mutual funds from 2016-2021 has been analyzed. The findings show that only 9 and 12 Investment Managers have stock selection ability prior to and following the Covid-19 pandemic, respectively. According to Treynor Mazuy model, there are only two Investment Managers with market timing ability prior to the Covid-19 pandemic, and only twelve Investment Managers have market timing ability during the Covid-19 pandemic, according to the Henriksson-Merton model. Every mutual fund with stock selection ability outperformed the benchmark. However, not all equity mutual fund with market timing ability outperformed the benchmark.

Islamic & Conventional Mutual Funds Performance by Return and Risk Adjusted Performance

This study compares the performance of Islamic and conventional mutual funds from 2017 to 2021 with the aim of analyzing the differences. This study makes use of secondary data from the Otoritas Jasa Keuangan (OJK) for 5 years that were downloaded from the OJK's official website (OJK). Purposive sampling is used in this study sampling method. The Mann-Whitney U Test is the analysis technique employed. According to the study's findings, there are no appreciable differences between mutual fund risk and market risk for Islamic mutual funds in terms of beta, return, and Sharpe. While there are variances between the Treynor, Jensen Alpha, M2 Measurement, and Appraisal Ratio techniques.

Testing of Performance Consistency And Performance Determinants Of Mutual Funds: A Study On Fixed Income Mutual Funds in Indonesia (2017 – 2021)

This study evaluates the performance of fixed-income mutual funds in Indonesia in 2015-2017 using 123 research samples. Mutual fund performance evaluation is done through three measurement models: Sharpe, Treynor, and Jensen's Alpha. Mutual fund performance is compared to market performance (Indonesia Composite Bond Index/ICBI) to assess whether the performance is better (outperforming), the same as the market, or worse (underperforming). The test results show that the three measurement models consistently assess mutual fund performance. Furthermore, this study examines the determinants of mutual fund performance in the form of funds under management, past performance, the flow of funds, and the age of mutual funds. From a population of 398 fixed-income mutual funds, 123 active fixed-income mutual funds were selected during the 2017-2021 period using a purposive sampling technique in order to obtain 614 observational data. The test results show that past performance, the flow of funds, and the age of mutual funds have a positive effect on mutual fund performance, while managed funds have a negative effect on mutual fund performance.

Evaluation of Performance and Efficiency of Polish Open-End Mutual Funds under High Volatility Environment in Financial Markets

Theoretical background: Retail investors in the financial market have nowadays access to a wide range of investment products. One of the types of such products are open-end investment funds, which by design are asset masses managed by professional entities. Open-end investment funds became one of the more popular financial instruments that retail customers purchase. Purpose of the article: This article aims at determining the efficiency of mutual funds as measured by the rate of return. An important point of the study is to determine whether funds with lower total risk as measured by standard deviation achieved lower losses. Research methods: The research method is an analysis of performance of twenty Polish open-ended mutual funds in three different time horizons, by using classic mutual fund performance measures adjusted for negative returns, i.e. Sharpe, Treynor and Jensen alpha indicators as well as the Israelsen and Treynor ratios adjusted for negative return. Main findings: It has been observed that the high volatility in the financial market had a direct negative impact on the returns of these funds. When comparing the Treynor ratio adjusted for negative returns values it appears that some of the analysed equity funds performed better than, for example, stable growth funds. In case of high volatility in the stock market, both in the long and short term, the analysed stable growth funds did not bring more value to investors in relation to the total risk incurred than balanced or even equity funds, which is particularly noticeable in the case of three-year and annual results. This is because asset diversification did not fully work in the high market volatility seen since the beginning of 2022 mostly due to falling prices of debt securities caused by interest rate increases. The article also contributes to the interpretation of Sharpe and Israelsen ratios in case of similar negative rates of return and different volatility measured, because the Israelsen ratio may not be the best to compare such funds as it prioritizes the funds with lower risk and does not consider relation of risk to return.

Portfolio Construction based on Equal Weights: Evidence from U.S. Pharmaceutical Sector

Within the context of the renewed global emphasis on the pharmaceutical sector as a result of the new crown epidemic, this article investigates how to develop a portfolio within the pharmaceutical industry. This focus comes as a direct result of the new crown outbreak. The primary source of the data is investing, and the time period covered is from December 31, 2016, to July 31, 2022. This study is organized around four main components: research on different market sectors, stock selection, portfolio design, and portfolio evaluation. The annualized return of the portfolio was 17.55%, which was higher than the annualized return of the S&P 500, which was 12.43%. This pharmaceutical sector portfolio's Jensen's Alpha, Treynor Ratio, and Sharpe Ratio all suggest that the portfolio has been effective in outperforming the market. This would seem to indicate that the pharmaceutical industry has historically been one of the least successful industries. The findings of this study have important repercussions for people who invest in stocks of pharmaceutical companies.

주가지수의 시간 가변적 샤프-최적 포트폴리오와 포트폴리오 성과 평가지표

This paper asks three questions. Whether can KOSPI be mimicking a Markowitz efficient portfolio? How well can stock indexes function in the view of portfolio performance variables in case that a stock index has the number of comprising stocks in its name? What is the relation between portfolio performance variables and portfolio diversification variables? Sharpe ratio, Trenyor ratio, Jensen alpha, and Information ratio are considered as portfolio performance variables while Cumulative ratio, the Hershman-Herfindahl index, the Gini index, and the Hall-Tideman index are regarded as portfolio concentration variables. Static panel regression methodology is adopted. The ranks of stock indexes are different depending on daily, weekly, and monthly portfolio performance variables. There is little consistent relation between portfolio concentration variables and Sharpe ratio and Treynor ratio in any cases of daily data, weekly data, and monthly data. However, Jensen alpha and Information ratio show consistent relation with portfolio concentration variables. It is hard to understand little relation between Sharpe (Treynor) ratio and portfolio concentration variables because portfolio concentration relates with the composition of portfolio, leading to the performance of portfolio.

Comparative Study of Pair Trading Techniques in Pakistan’s Financial and Non-Financial Sector

Purpose: This study attempts to empirically investigate the pair trading performance of financial and non-financial firms in Pakistan. Methodology: Daily data from 2008 to 2017 was collected for nine years. Cointegration and the distance approach were the two major analytical techniques used to evaluate the profitability of pair trading. The financial and non-financial sectors of the Pakistan Stock Exchange were used to build the pairs. Findings: Results showed that the top 5 pairs of portfolios exhibited the highest average excess returns of 0.0698, and Jensen's alpha is 0.0947 for the top 5 pairs. All pairs of firms showed significant and positive risk-adjusted performance. In the non-financial sector, the Top 10 pairs of portfolios had the highest average excess returns of 0.0789, and Jensen's alpha under the co-integration method for non-financial firms for all pairs 5, 10, 15, and 20 of the portfolios is also substantial and positive for risk-adjusted performance, with 0.0046, 0.0618, 0.0577, and 0.0493, respectively. Finally, pair trading under both techniques showed profitability. However, the co-integration technique exhibited better performance than the distance method. Conclusion: The study concluded that both pair trading techniques, particularly the co-integration technique, exhibited profitable pair trading performance that can assist investors and fund managers to earn positive returns on their investments regardless of market direction.

Performance of Islamic Equity Fund in Indonesia and Malaysia

This study aims to measure the performance of Indonesian and Malaysian Islamic stock mutual funds and find out who performs better based on the Sharpe Index, Jensen Alpha, Escess Return of VAR (EROV) methods. ) and Sortino Ratio, and which sharia shama mutual funds performed better among them during the period 2010 to 2019. This study concludes that on average, both Indonesian and Malaysian Islamic equity mutual funds perform no better than market returns. However, the results of this research analysis have not made it possible to conclude that Indonesian Islamic stock mutual funds outperform Malaysian Islamic stock mutual funds or vice versa. This is because (1) both of them underperformed the market benchmark, (2) the results of the t-test show that based on the two measurement methods (Sharpe Index and EROV) there are significant differences, but based on the other two methods (Jensen Alpha and Sortino ratio) the t-test results -Test is not convincing enough to say that the average value of Jensen Alpha and IMF Sortino Ratio in Malaysia and Indonesia is significantly different. And (3) statistically, the samples of Indonesian and Malaysian Islamic stock mutual funds are not balanced.

Application of Analytical Hierarchy Process to Evaluate Ten Years of Mutual Fund Performance in Indonesia

Background – Mutual funds are one of the investment instruments whose popularity is increasing every year. Throughout August 2020 all types of mutual funds showed positive performance and equity funds became the mutual funds that had the highest performance among other types of mutual funds. Investors must be observant and careful in choosing which mutual funds are worth buying and have the best performance so that the risk of loss can be minimized. The decision-making process is not easy, so a decision-making tool called the Analytical Hierarchy Process (AHP) is needed. 
 Purpose – This study aims to analyze the performance of equity funds as a consideration for investors in choosing the best mutual funds with the Risk Adjusted Return (RAR) method, Sharpe Ratio, Treynor Ratio, and Jensen Alpha. 
 Design / Methodology / Approach – This research approach is quantitative. The population in this study are all equity funds which are then sampled with criteria of more than 10 years having the largest Asset Under Management (AUM) as of December 2020 and one mutual fund product representing an investment manager. The data analyzed are primary data and secondary data. The data analysis method in this study uses the Analytical Hierarchy Process (AHP) as a decision-making tool for 10 alternative mutual funds. 
 Result and Discussion – Based on the results of the analysis, it shows that the RAR method is the criterion that shows the most consistency in assessing the performance of mutual funds. This result is also supported by the opinions of several competent investment managers regarding mutual fund investment as respondents in this study. The overall results of selecting the best mutual fund performance in terms of the 4 criteria used show that the FWD Asset Dividend Yield Equity Fund is the best alternative choice with an overall inconsistency shown of less than ten percent, which means that the data comparison in this study is valid and consistent. 
 Conclusion – Based on the AHP method, it shows that the FWD Asset Dividend Yield Equity Fund has superior performance compared to the other eight mutual funds with the largest final weight of 0.155. 
 Research Implication – This research can be used as a basis for making investment decisions in mutual funds so that investors know the best performance information on mutual funds using the 4 criteria. 
 Research Limitations – This study has limitations related to the criteria, namely Risk Adjusted Return (RAR), Sharpe Ratio, Treynor Ratio, and Jensen Alpha and the alternative used is only 10 equity mutual funds, so that it can be developed using other criteria or adding sub-sub-criteria, and can use other mutual fund alternatives.

Asset pricing models in South Africa: A comparative of regression analysis and the Bayesian approach

<abstract> <p>This study investigated the risk-return relationship using the Capital Asset Pricing Model (CAPM), Carhart four-factor Model (C4FM) and Fama and French Multifactor Models (FFMMs): F3FM and F5FM. This study analyzed the JSE ALSI returns of the South African market, in relation to the risk factors constructed by the data of twenty-six emerging markets, over the sample period from October 2000 to October 2021. The methodology employed was a comparison of the conventional regression analysis and novel Bayesian approach. Regression analysis estimated by Ordinary Least Squares (OLS) is one of the foremost methods used in South Africa. However, such an approach does not take into account the properties of the price data, namely, the asymmetric, volatile and random nature. While the Newey-West adjustment is one way to assist in capturing autocorrelation and volatility, it fails to consider asymmetry. The Bayesian approach accounts for all the aforementioned properties, overcoming the fundamental flaws of regression analysis. The additional model diagnostics highlighted in this study improved the Bayesian approach' robustness. The risk factors of the FFMMs estimated by regression analysis, with and without the Newey-West adjustment, were insignificant, whereas the Bayesian test results were significant. This finding clearly highlighted that model choice impacts the significance of parameter estimation and the financial decisions of investors, firms and policymakers. Jensen's alpha revealed CAPM to be optimal but none of the asset pricing models fully captured the risk premia. Thus, returns should be investigated with different risk measures for future research purposes.</p> </abstract>

Analisis Kinerja Reksa Dana Saham Konvensional dengan Metode Jensen’s Alpha, Sortino dan Snail Trail Periode 2017-2021

This study aims to analyze the performance of conventional equity mutual funds using jensen's Alpha, Sortino, and Snail Trail methods for the period 2017 to 2021 and can provide information and consideration regarding equity mutual funds. The measurement methods used in analyzing the performance of conventional stock mutual funds are Jensen's Alpha, Sortino, and Snail Trail. The sample used was 32 conventional stock mutual funds with a period of 5 years 2017-2021. The benchmark for stock mutual funds used for comparison is JCI. The data collection technique uses the purposive sampling method. Data analysis techniques in this study used the Mann Whitney U-test. The results showed that the performance of conventional equity mutual funds using Jensen's Alpha and Sortino methods had significant differences. The performance of conventional equity mutual funds using Jensen's Alpha and Sortino methods has significant differences and has superior performance compared to market performance. The results of snail trail show that the performance of conventional equity mutual funds is in quadrants 2 and 3. Equity mutual funds located in quadrant 2 have a relatively high value of return and risk and each stock mutual fund located in quadrant 3 has a relatively low return with high risk. The more often the snail trail of stock mutual funds is located in 3rd quarter, it is likely that investors will switch to other types of mutual funds.

Performance of Conventional and Sharia Mutual Funds Using Sharpe, Treynor and Jensens Methods

Mutual funds is an instrument investment which is the best recommendation for beginner investor or an alternative investment that more safe and eficient. Investing growth give an opportunity to economic growth and to agregat growth of a country macro economic. That things were positive impacted to many factors for harmony and prospery. Research purpose - Indonesia is a country with the majorities moeslims citizen, to know how money market conventional and sharia mutual funds performances that can become a scient or subject to inform the investors of optional instrument investment it is does not depends to any religion. Using the portofolio method performance there are Sharpe Index, Treynor Index, and Jensen Alpha. And the variables using net asset value of money market mutual funds, risk free BI-7DRR, JKSE, and JII periode time 2017-2021. This research can show that mutual funds is a sustainable investment caused both of risk and return are the same. Research result In 2020 pandemic covid-19 hitten Indonesia and streamed untill 2022 but in the fact investment popularity doing hightly, a lot of campaign and promoting influencer to pull on teenegers become a new investor. Money market mutual fund is a suitable recommendation for investor beginner according with increased of under asset management value of money market mutual funds during pandemic. On the practice there are more options of mutual funds with two principle are conventional and sharia mutual funds.

Risk-adjusted investment performance of green and black portfolios and impact of toxic divestments in emerging markets

Environmental degradation is a global concern that warrants cooperative efforts from multiple stakeholders. In this context, responsible finance is critical to help achieve the sustainability targets and foster transition to net-zero emissions. However, to encourage green finance, investors must receive some incentives, and this paper explores if there are any benefits for the market participants. We have employed a comprehensive sample of firms from the BRICS for ten years and sorted them into black and green portfolios using multiple constructs. The comparative assessment of these portfolios shows that green stocks dominate their black counterparts, and the dominance was robust across adjusted Sharpe and Sortino ratios and Jensen's alpha. Our evidence also demonstrates that rebalancing of the portfolios due to changing ecological characteristics results in successful market timing for the green portfolios. Finally, the results suggest that the divestment of fossil fuel stocks, firms with lower environmental scores, high carbon intensity, and low sustainable revenues provide investment benefits. These findings are very encouraging for the evolution of green finance in emerging markets and have important implications for market participants.

Türkiye’de Sürdürülebilir Temalı Fonların Geleneksel Fonlarla Karşılaştırmalı Performans Analizi

Sustainable finance aims to contribute to the development of an environmentally and socially sensitive production approach of economic activity in order to leave a more livable world to future generations with an environmental and social investment approach. It increases the importance of comparing the performances of sustainable-themed funds with traditional themed funds, for investors to consider investing with a socially responsible investment approach. In this study, the performances of sustainable-themed funds with traditional funds and indices in Turkey were analyzed comparatively. BIST Sustainable index (XUSRD) as the market index of sustainable funds; the BIST100 index (XU100) was chosen as the market index of traditional funds. Since the history of sustainable funds in Turkey is not very old, daily data for the years 2019-2022 were analyzed as the data period. In the study, firstly, the performances of the funds were compared with annual return, standard error, Sharpe ratio, Jensen's alpha and Treyner criterion. Then XU100 and XUSRD were selected as the market portfolio, and the returns and systemic risks of the portfolios were obtained with the Capital Asset Pricing Model (CAPM). According to the results obtained from the study, it has been observed that the performance of sustainable themed funds is better than their traditional substitutes and market indices.

Importance Weights of Performance Ratios: Analyzing Hedge Funds by Entropy Method

In this study, it is aimed to examine the importance weights of performance ratios by using the data of hedge funds operating in the January 1999-May 2019 period. In the study information, Calmar, Jensens alpha, m-square, Sharpe, Sortino and Sterling ratios, which hedge fund investors expect to be high, were calculated, and the importance weights of these ratios were determined by the Entropy method, which is one of the multi-criteria decision-making methods. The results show that Sortino, Sterling, and Jensen’s alpha ratios have higher importance weights than other ratios.

Are Modifications in the ETF's Investment Performance and Risks during the COVID-19 Pandemic Event?

This study focuses on the impact of the COVID-19 pandemic on the investment performance and systematic risk of ETFs. As a result of the early stages of the COVID-19 outbreak, the impact in China was much greater than that in Taiwan. Therefore, by two ETFs investing higher weighted stocks in the Shanghai and Taiwan markets, the ETFs are used to explore the COVID-19 pandemic effect on the two stock markets. Jensen’s alpha and the modified model by Jensen (1968) are coupled with GARCH(1,1) to modify and test ETF’s performance and systematic risk. The empirical results show that ETF50 performance may be overestimated by using Jensen’s alpha. According to the results of modified Jensen's alpha, there is no evidence that abnormal returns are significantly nonzero in both ETFs and that alpha values have not been changed by the COVID-19 event. After the COVID-19 pandemic began, the SSE50 ETF’s systematic risk significantly increased, and the asset size of funds significantly decreased. Therefore, the results supported the significant impact of the COVID-19 pandemic on the SSE50 ETF. There is evidence that the SSE50 ETF affects COVID-19 events, and this result echoes the more severe areas of the COVID-19 pandemic in China.

Can robo advisors expedite carbon transitions? Evidence from automated funds

When it comes to making comparisons with traditional funds, it has been observed that Robo advisers have emerged as a viable alternative that imposes a substantially lesser load on the investors. As a result, they are capable of playing a crucial role in supporting low-carbon transitions - a phenomenon that has never been investigated prior to this. In this study, we assess the performance of automated funds, after categorizing them into different groups, based on their investment exposure to carbon-emitting enterprises. Our findings reveal that automated funds that invest in low-carbon funds tend to outperform their competitors. Moreover, when we compare the absolute returns, the return to value at risk, the adjusted Sharpe ratio, and Jensen's alpha, these results remain consistent. In addition to this, we also found that Robo funds with less exposure to polluting companies have better market timing. Therefore, we conclude that these technology-enabled investment vehicles can help with low-carbon transitions and are instrumental in achieving sustainable development goals.

AN EVALUATION OF MUTUAL FUND IN INDIA BASED ON DIFFERENT RISK ANALYSIS METHODS

A mutual fund is an investment fund that combines the money from a group of individuals with similar nancial goals. The funds raised are subsequently invested in capital market instruments such as stocks, bonds, and other assets. The primary goal of this research was to evaluate the risk analysis of a diversied equity growth schemes using risk analysis performance measuring methods such as Sharpe's measure, Treynor's measure, Jensen's alpha, and Rank conict. For the period of 2017 to 2021, the analysis was based on the monthly NAV of 43 rms. Some of the numerous performance tools are present in the Mutual fund's performance. In this research, I discovered that all of the rms provided the same rank, with the exception of those that were subjected to Rank Conict Analysis. Sharpe's and Treynor's measurements provide the same result, however Jensen's Alpha measures produce a different result.

Does organizational form really matter to investment firms?

PurposeThe purpose of this study is to investigate whether the organizational form of an investment management firm affects the performance of the mutual funds under its operation. More explicitly, this study aims to test whether funds managed by publicly listed firms achieve different risk-adjusted performance when compared with funds operated by privately held investment firms.Design/methodology/approachThis study uses Jensen's alpha to measure funds’ performance based on the Carhart’s (1997) benchmarks and market timing factors. The researchers test the relation between fund performance and organizational form using regressions. It alleviates the reverse causality and endogeneity using propensity score matching (PSM) methodology. The study investigates the difference in performance of funds managed by public firms on the post- vs pre- initial public offering (IPO) basis. Alternatively, this study tests the performance change post-public listing of the parent firm. It computes the difference for a matched sample of funds managed by private firms that were likely to go public but did not. The researchers match funds using PSM methodology.FindingsThis paper provides robust evidence that publicly traded management companies administer relatively under-performing mutual funds in comparison to those managed by privately held firms. To the best of the authors’ knowledge, this is the first paper that confirms that organizational decision is endogenous to performance. The study finds that after a privately held company goes public, the performance of their mutual funds and the performance of the matched group funds, whose companies remained private at the same time, tends to decline, compared with companies prior to the public offering. However, the decline in mutual fund performance is larger for the companies who chose to pursue their IPO.Originality/valueThe contribution of this study to the literature is twofold. First, while there is a wealth of literature on the impact of ownership structures on corporate performance, there are very few studies focused on mutual fund markets, despite the evidence that supports a generally mixed effect. This study confirms that the performance of mutual funds managed by publicly traded investments firms is lower than that of funds managed by privately held firms. Second, the organizational decision (private vs public) is not exogenous but depends on the actual funds’ performance.

Portfolio Performance of Islamic Versus Conventional Market Indices and Regime Shift Behavior: Empirical Evidence from Asian Emerging Markets

Purpose: The main objective of this study is to examine the performance analysis of Islamic and conventional portfolio of emerging market of Asia and to investigate whether Islamic indices outperform the conventional indices or not. Moreover, to investigate the regime shift behavior of these markets.
 Design/Methodology/Approach: Emerging markets of Asia like China, India, Indonesia, Malaysia, Pakistan and Thailand are taken. Data is taken for the period January 2010 to December 2019. Data frequency is on monthly closing prices basis for both markets. Risk adjusted measures like Sharpe ratio, Treynor ratio and Jensen alpha are used for performance evaluation. Markov switching model is used to investigate the performance of both indices. Morgan Stanley capital international risk- free rate is used as risk proxy.
 Findings: Sharpe ratio is outperformed in Islamic markets while Treynor ratio is outperformed in conventional markets. Jensen alpha is outperformed in Islamic market so result proved that mostly Islamic markets is outperformed. The Markov switching model divide the MSCI returns into two parts recession and expansion. Results indicated that the presence of regime in both recession and expansion period so investor can diversify the international portfolios. Mix portfolio strategy is indicated that investor behavior is indifferent. There is a change in both regime in recession and expansion period so investor consider the international portfolio diversification with regime shifts.
 Implications/Originality/Value: This study is important for global investor as well as local investor for portfolio diversification. This study is also important for academic scholars, Regulatory authorities and for those who is interested in Islamic funds by their religious views.