Mutual Fund Market Research Articles

On the Impact of Regulating Commissions: Evidence from the Indian Mutual Funds Market

Commissions-motivated agents have historically helped the development of many markets, but research suggests brokers motivated by commissions sometimes steer consumers towards inappropriate products. This issue is particularly important in household financial markets where consumers may be unable to evaluate products on their own. While reforms attempting to limit commission payments have been undertaken worldwide, little research has evaluated the impact of these reforms. We study a major Indian investor protection reform that attempted to reduce commissions tied to mutual fund sales by banning the distribution fees that mutual funds had previously earmarked for commissions. We analyze the policy impact by comparing funds charging high versus low distribution fees pre-reform and find no evidence that the reform itself reduced fund flows. We argue that the most plausible explanation is that the Indian asset management industry maintained substantial commissions to brokers through other revenue sources apart from the banned distribution fees.

Mutual fund performance: a market efficiency perspective

ABSTRACTThis study reconciles existing literature on stock market efficiency and mutual fund performance by developing a framework to test whether fund managers are able to exploit market inefficiencies. We find a positive relationship between alpha and weak-form market efficiency. Most funds are unable to outperform the market systematically, although a few are able to exploit relatively inefficient markets. Top performing funds are characterised by a better management of downside risk in times of market distress, whilst simultaneously exploiting learning effects when markets return to equilibrium. By conditioning fund performance on the state of the underlying market, we propose a conditional alpha ratio, which helps to better understand fund performance and can improve the fund selection process for investors.

Managerial Ability, Risk Preferences and the Incentives for Active Management

This paper uses a structural econometric model to assess the managerial ability of Spanish management companies. Traditionally, ability has been mainly measured by the alphas of CAPM models. The model used in this paper allows to disentangle the ability and references that are embedded in alphas. The results show that the abilities of Spanish management companies are lower than their peers in the US. This result could be the consequence of the limited competition in the mutual fund market as well as the narrowness of the equity arkets that the funds invest in. Moreover, it is shown that the fraction of the funds’ portfolios that is actively managed does not depend on the fees paid and it is negatively correlated to funds’ total assets and whether a fund belongs to a credit institution’s management company.

Performance Evaluation of selected Mutual Funds in India

In this paper the performance evaluation of Indian mutual funds is carried out through risk-return analysis, Treynor's ratio, Sharpe's ratio, and a risk-adjusted measure of portfolio performance (known as “Jensen's Alpha”) that estimates the predictive ability of the fund manager and the relationship between mutual fund return and market return is expressed through correlation. The data used is monthly closing and opening NAVs. The source of data is website of Association of Mutual Funds in India (AMFI). Study period is from April 2013 to March 2016. Five Equity mutual fund schemes were used for the analysis. The result of the study is that, UTI Equity Fund, Birla Sunlife Equity Fund, and TATA Pure Equity Fund has shown high returns and low risk and there is a positive relationship between market index and all selected equity linked mutual fund schemes and UTI Equity Fund has an excess positive return than the expected return determined by the fund manager at the initial stage of an investment. So the manager who predicted the expected return of UTI Equity Fund is considered as the best performer.

Estimation of Volatility in the Indian Mutual Fund Market

Economic development of a nation depends mainly on the financial system and the rate of new capital formation which form the backbone of the nation. This can be achieved by mobilizing savings and adopting a new investment pattern. Tax Saving Mutual Fund Schemes are one of the financial instruments which mobilize the funds from investors with the exemption of Tax payment. Investor expects other benefits like market oriented return, low risk, and safety on their investment. As such, analyses have been made in this paper to measure the volatility of Indian Mutual funds market by using standard deviation, Beta, GARCH and ARCH models. In particular 32 growth-oriented open-ended Tax Saving Mutual Fund Schemes have been analyzed. It is found that there is no volatility in tax saving mutual funds during the period of study.

Impact of Competition on Fund Disclosures and Consumer Search Costs

This paper investigates the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs. In a sample of open-end US domestic equity funds, it finds that voluntary disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use voluntary portfolio disclosures as a marketing tool to attract new investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With higher competition, the likelihood of receiving new investments goes down for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets and hence, the effect is stronger for them. Thus, competition appears to have an adverse impact on market transparency and hence, on consumer search costs in a tournament-like mutual fund market.

Investigating Persistence in the US Mutual Fund Market: A Mobility Approach

Performance persistence in the US mutual fund market is investigated, modeling risk-adjusted performance as a Markov Chain. This allows us to explore whether there is a higher probability for funds to remain in their initial ranking, compared to the probability that funds exhibit some kind of movement. We find some degree of inertia due to non-uniformity of transition probabilities across states. Our analysis allows also assesses the proximity of empirical transition matrices to two benchmark matrices, identifying the no-persistence/perfect immobility cases. We find that the observed transition matrices are closer to the no-persistence benchmark and also that performance persistence has decreased over time.

한국시장에서의 뮤추얼펀드의 성과와 현금흐름 간의 중기적 관계

This study examines the relation between mutual fund performance and fund flows in Korean market using weekly and monthly data. The results are as follows. First, the relation between the two variables varies across fund types. Even the relations in equity fund and index fund are different from each other. Second, the structural change in the mutual fund market affect significantly the relation between the two variables. Third, return chasing flow is observed constantly in bond fund and it is observed only after the structural change for equity fund and MMF. However, no return chasing flow is observed for index fund. Fourth, mutual fund flows affect subsequent fund returns only in MMF after the structural change.

Unbundling the Expense Ratio: Hidden Distribution Costs in European Mutual Fund Markets

Using data on more than 5,000 mutual funds domiciled in four European countries in 2006, we investigate whether distribution costs embedded into the expense ratio can be held responsible for the differences of expense ratios of mutual funds in different countries. We confirm the existence of relevant country effects in the pricing of mutual fund management services. Comparing load and no-load funds and using survey data on fee retrocession to the distribution channel, we provide evidence that these effects are heavily influenced by the cost of the distribution embedded in the expense ratio.

Market Timing Around the World

This article challenges existing studies of mutual fund market timing that have found little evidence to support timing ability. Using a sample of daily returns for 35 countries, Vidal, Vidal-Garcia, and Boubaker find that more than a third of mutual funds show significantly positive market timing ability across all countries. The authors demonstrate that using daily returns rather than monthly returns increases the number of significant estimates of timing ability, indicating that observation frequency is relevant when examining fund performance. They also find evidence for market timing in recessions and document that the effect of the business cycle on market timing is much stronger for extremely successful fund managers. Using a set of synthetic fund returns to control for spurious results, they show that the measured market timing is not a spurious statistical result.

Should Indirect Brokerage Fees Be Capped? Lessons from Mutual Fund Marketing and Distribution Expenses

Theory predicts that capping brokers’ compensation exacerbates the exploitation of retail investors. We show that regulated caps on mutual fund 12b-1 fees, effectively sales commissions, are associated with negative equity fund performance, but only after a structural shift toward maximum permitted levels of the fees around 2000. Past this break point, flow–performance sensitivity shifts from the middle- to the highest-performing funds, suggesting that the fee cap increases performance-chasing behavior by constraining brokers’ incentives to learn about lower-ranked funds. The policy implication is that regulators must reevaluate the efficacy of caps on brokerage fees.

Developing an Integrated Model of Equity Mutual Funds Performance: Evidence from the Indonesian Mutual Funds Market

AbstractThis study aims to determine the factors that affect the performance of mutual funds, especially equity mutual funds. There are several factors that considered affect the performance of mutual funds such as: Asset Under Management (AUM), fund age, past performance, asset allocation, Turn of the Year effect, equity funds with blue chip or non-blue chip stocks, equity funds owned by insurance or non-insurance, external factors such as the rupiah against the US dollar (exchange rate), and investors behavior factor. In this study the researchers have collected data from January 2008 to December 2014. For the purpose of the study the researchers have selected 30 sample of equity mutual funds are still active from 2008-2014. The results are processed using Sharpe ratio to measure the magnitude of risk premium for each unit of risk taken. The result shows that all variables has significant influence on the performance of equity mutual funds. Partially, Asset Under Management (AUM), fund age, asset allocation, Turn of the Year Effect, exchange rate, and investor behavior have significant influence on the performance of equity mutual funds. While another variables such as past performance, Blue Chip and Non-Blue Chip Mutual Funds and insurance and non-insurance company don’t have significant influence on the performance of equity mutual funds in Indonesia. All of variables studied have great contribution on the performance of equity mutual funds. This finding can guide the investment managers in formulating an appropriate investment strategy for investors who want to put their funds into equity funds. This finding can guide the investment managers in formulating an appropriate strategy for investors who want to put their funds into equity funds. Through this study also the authors give a recommendation about the optimal portfolio strategy for the investors. The research result also shows that strategic asset allocation with rebalancing strategy is considered best done by an investor. This finding can be used by the investors as a reference to invest in equity mutual funds to improve the profit to develop their business. (Abstract)

Price Strategies in a Vertically Differentiated Mutual Fund Market

Several empirical studies show that mutual funds set their prices in a strategic way according to their level of quality. In a market where two mutual funds are vertically differentiated, we study their price strategies in cases of perfect information and when investors are unable to distinguish the type of fund. Our results show that mutual funds prefer to set their price sequentially and that they are indifferent to be the first or the second mover. Additionally, the presence of a lower quality mutual fund compels both mutual funds to set lower prices for low levels quality differences between them.

Price strategies in a vertically differentiated mutual fund market

Several academic studies show that mutual funds set their prices in a strategic way according to their level of quality. This study examines a market in which two vertically differentiated mutual funds compete. Their price strategies are determined for the cases with complete and incomplete information. Our results show that mutual funds prefer to set their prices sequentially and that they are then indifferent to being the first or the second mover. With incomplete information, the presence of a lower quality mutual fund compels the high quality mutual fund to set lower prices at small levels of quality difference.

The relation between fees and return predictability in the mutual fund industry

We propose and test a methodological framework to examine the relation between mutual fund fees and return predictability. Gil-Bazo and Ruiz-Verdu (2009) drew attention to the puzzling fact that funds with worse before-fee performance charge higher fees. We make another contribution to the literature about the market for equity mutual funds: we find strong evidence of predictability for mutual fund fees. Funds with both positive and negative relations with fees show strong evidence of negative return predictability for their fees. Our findings are robust to alternative estimation methods and under the assumption of conditionally heteroskedastic stock returns. Our results also show that conditioning information (e.g. dividend yield, t-bill yield, default spread and term spread) are useful in selecting funds with superior performance and are valuable for asset allocation decisions.

Does Competition Matter in the Mutual Fund Market? Evidence from Hong Kong

We find that sensitivity of fund flows and fund performance are both related to participants’ right to choose their investments in defined contribution plans. Under the Mandatory Provident Fund system of Hong Kong, both employers and employees are required to contribute to a retirement account. Originally, employees’ investment choices were restricted to a subset of funds chosen by their employers. The system was later modified so that employees are allowed to invest in any fund within the system. We present evidence that flows of fund have become more sensitive to past fund performance after this policy change, and that average fund performance in the system has also improved. Based on the improvement in fund performance, we estimate the accumulated cost of the lack of choice to be around 10% of the current total asset value of the system.

Can Mutual Fund Flows Serve as Risk Indicators? An Empirical Analysis with CDS Spreads

This paper examines the information content on mutual fund flows and investors’ preference/tolerance towards risk. Specifically, we examine the relationship between several categories of mutual fund flows and market credit risk measured by CDS spreads. Our results suggest that equity fund flows are negatively related to market credit risk. On the other hand, money market fund flows are positively related to CDS spreads. We further separate fund flows into retail and institutional funds and relate these fund flows to CDS spreads. Our results suggest that retail fund flows provide insightful information and serve as primary indicators of market credit risk.

The Relation between Price and Return Predictability in the Mutual Fund Industry

We propose and test a methodological framework to examine the relation between mutual fund fees and return predictability. Gil-Bazo and Ruiz-Verdu (2009) drew attention to the puzzling fact that funds with worse before-fee performance charge higher fees. We make another contribution to the literature about the market for equity mutual funds: we find strong evidence of predictability for mutual fund fees. Funds with both, a positive and a negative relation with fees show a strong evidence of negative return predictability for their fees. Our findings are robust to alternative estimation methods and under the assumption of conditionally heteroskedastic stock returns. Our results also show that conditioning information (e.g. dividend yield, t-bill yield, default spread and term spread) are useful in selecting funds with superior performance and valuable for asset allocation decisions.

STRATEGY FORMULATION FOR DEVELOPING BATIK TULIS

Investment decisions under risk may lead investors to behave irrationally in managing their portfolio investments. This study aims to examine the behavior of mutual fund investors in making investment decisions during the mutual fund market crisis in Indonesia in 2005. Specifically, this study examines the effect of investment motives and investment benefits on mutual fund investment performance by considering the fund redemption motives during a mutual fund crisis 2005. This study also controls the effect of different types of investors on empirical models. This study used primary data with a sample of 96 mutual fund investors, of which 46 are investors who have invested in a period of mutual fund crises. This study adopted a factor analysis technique to reduce the number of variables and minimize multicollinearity between independent variables. Furthermore, t-test in multiple regression analysis is used to test the research hypothesis. The results showed that the influence of investment motives and investment benefits on mutual fund investment performance is sensitive to different types of investors. Investors who also invest directly in the capital market seem more sophisticated in managing their portfolios than investors who only invest in the mutual fund market. Investors make redemption of funds in a period of mutual fund crisis caused by misleading factors rather than panic factors. This study found no signs of trauma from investors after experiencing huge investment losses due to the mutual fund crisis in 2005.

On the Impact of Regulating Commissions: Evidence from the Indian Mutual Funds Market

On the Impact of Regulating Commissions: Evidence from the Indian Mutual Funds Market